UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 29, 2019~~June 28, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-35373

FIESTA RESTAURANT GROUP, INC.

(Exact name of Registrant as specified in its charter)



DE		90-0712224
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
14800 Landmark Boulevard, Suite 500		75254
Dallas	TX	(Zip Code)
(Address of principal executive office)

Registrant's telephone number, including area code: (972) 702-9300

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	FRGI	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	☒☐	Accelerated Filer	☐☒

Non-accelerated Filer	☐	Smaller Reporting Company	☐

		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October~~July 30, ~~2019,~~2020, Fiesta Restaurant Group, Inc. had ~~27,476,451~~25,956,504 shares of its common stock, $0.01 par value, outstanding.

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUARTER ENDED ~~SEPTEMBER 29, 2019~~JUNE 28, 2020



		Page
PART I FINANCIAL INFORMATION

Item 1	Interim Condensed Consolidated Financial Statements (Unaudited) - Fiesta Restaurant Group, Inc.:

	Condensed Consolidated Balance Sheets as of ~~September~~June 28, 2020 and December 29, 2019 ~~and December 30, 2018~~	42

	Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September 29,~~June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~	53

	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and ~~Nine~~Six Months Ended ~~September 29,~~June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~	64

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September 29,~~June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~	75

	Notes to Unaudited Condensed Consolidated Financial Statements	86

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	2420

Item 3	Quantitative and Qualitative Disclosures About Market Risk	4441

Item 4	Controls and Procedures	4441

PART II OTHER INFORMATION

Item 1	Legal Proceedings	4441

Item 1A	Risk Factors	4441

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	4442

Item 3	Defaults Upon Senior Securities	4542

Item 4	Mine Safety Disclosures	4542

Item 5	Other Information	4542

Item 6	Exhibits	4643

PART I. FINANCIAL INFORMATION

ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)


	September 29, 2019			December 30, 2018			June 28, 2020			December 29, 2019
ASSETS
Current assets:
Cash	$	3,509		$	5,258		$	101,375		$	13,413
Accounts receivable	9,066			8,505			7,604			7,933
Inventories	3,222			2,842			3,446			3,394
Prepaid rent	119			3,375			106			117
Income tax receivable	1,502			17,857			10,635			3,821
Prepaid expenses and other current assets	12,378			6,562			17,195			10,605
Total current assets	29,796			44,399			140,361			39,283
Property and equipment, net	221,122			231,328			187,928			211,944
Operating lease right-of-use assets	254,449			—			257,654			251,272
Goodwill	56,307			123,484			56,307			56,307
Deferred income taxes	8,243			10,383
Other assets	7,685			9,065			8,134			9,835
Total assets	$	577,602		$	418,659		$	650,384		$	568,641
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	204		$	108		$	241		$	212
Accounts payable	11,094			16,410			29,525			14,776
Accrued payroll, related taxes and benefits	9,686			10,086			8,937			9,866
Accrued real estate taxes	7,424			5,871			5,558			6,497
Other current liabilities	29,842			14,086			34,836			32,269
Total current liabilities	58,250			46,561			79,097			63,620
Long-term debt, net of current portion	70,887			79,636			148,233			76,823
Deferred income—sale-leaseback of real estate	—			19,899
Operating lease liabilities	258,891			—			264,157			256,798
Deferred tax liabilities							7,866			4,759
Other non-current liabilities	8,066			32,504			10,343			8,405
Total liabilities	396,094			178,600			509,696			410,405
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 20,000,000 shares authorized, no shares issued	—			—			—			—
Common stock, $0.01 par value; 100,000,000 shares authorized, 27,480,487 and 27,259,212 shares issued, respectively, and 25,926,561 and 26,858,988 shares outstanding, respectively	271			270
Common stock, $0.01 par value; 100,000,000 shares authorized, 27,950,982 and 27,461,697 shares issued, respectively, and 25,288,256 and 25,612,597 shares outstanding, respectively							273			271
Additional paid-in capital	172,426			170,290			174,970			173,132
Retained earnings	22,937			72,268
Treasury stock, at cost; 1,176,895 and 112,358 shares, respectively	(14,126		)	(2,769		)
Retained earnings (accumulated deficit)							(13,776		)	1,884
Treasury stock, at cost; 1,993,495 and 1,493,495 shares, respectively							(20,779		)	(17,051		)
Total stockholders' equity	181,508			240,059			140,688			158,236
Total liabilities and stockholders' equity	$	577,602		$	418,659		$	650,384		$	568,641

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER 29,~~JUNE 28, 2020 AND JUNE 30, 2019 ~~AND SEPTEMBER 30, 2018~~

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018			June 28, 2020			June 30, 2019			June 28, 2020			June 30, 2019
Revenues:
Restaurant sales	$	163,589		$	173,966		$	499,483		$	518,951		$	121,547		$	170,713		$	267,633		$	335,894
Franchise royalty revenues and fees	659			682			1,998			2,008			321			668			934			1,339
Total revenues	164,248			174,648			501,481			520,959			121,868			171,381			268,567			337,233
Costs and expenses:
Cost of sales	52,056			56,021			156,324			166,275			37,807			53,758			84,083			104,268
Restaurant wages and related expenses (including stock-based compensation expense of $102, $6, $145, and $56, respectively)	44,459			47,943			135,261			142,103
Restaurant wages and related expenses (including stock-based compensation expense of $69, $16, $105 and $43, respectively)													33,747			45,766			74,242			90,802
Restaurant rent expense	11,970			9,129			35,613			26,861			11,279			11,898			22,618			23,643
Other restaurant operating expenses	24,153			27,294			68,429			75,398			18,989			22,513			40,500			44,276
Advertising expense	6,385			6,472			17,789			18,046			2,143			5,883			7,926			11,404
General and administrative (including stock-based compensation expense of $509, $732, $1,993 and $2,588, respectively)	13,820			13,284			42,387			41,023
General and administrative (including stock-based compensation expense of $959, $719, $1,735 and $1,484, respectively)													12,288			13,496			26,672			28,567
Depreciation and amortization	10,165			9,739			29,520			27,908			9,565			9,807			18,995			19,355
Pre-opening costs	77			223			863			1,481			—			385			69			786
Impairment and other lease charges	3,254			6,417			4,667			6,539			2,285			1,751			6,518			1,413
Goodwill impairment	21,424			—			67,909			—			—			46,485			—			46,485
Closed restaurant rent expense, net of sublease income	726			—			3,485			—			1,830			1,335			3,462			2,759
Other expense (income), net	64			47			920			(3,132		)	784			154			1,692			856
Total operating expenses	188,553			176,569			563,167			502,502			130,717			213,231			286,777			374,614
Income (loss) from operations	(24,305		)	(1,921		)	(61,686		)	18,457
Loss from operations													(8,849		)	(41,850		)	(18,210		)	(37,381		)
Interest expense	823			924			3,024			2,979			1,237			967			2,198			2,201
Income (loss) before income taxes	(25,128		)	(2,845		)	(64,710		)	15,478
Benefit from income taxes	(2,946		)	(4,892		)	(1,377		)	(246		)
Net income (loss)	$	(22,182	)	$	2,047		$	(63,333	)	$	15,724
Loss before income taxes													(10,086		)	(42,817		)	(20,408		)	(39,582		)
Provision for (benefit from) income taxes													(1,743		)	623			(4,748		)	1,569
Net loss													$	(8,343	)	$	(43,440	)	$	(15,660	)	$	(41,151	)
Earnings (loss) per common share:
Basic	$	(0.84	)	$	0.08		$	(2.37	)	$	0.58		$	(0.33	)	$	(1.62	)	$	(0.62	)	$	(1.53	)
Diluted	(0.84		)	0.08			(2.37		)	0.58			(0.33		)	(1.62		)	(0.62		)	(1.53		)
Weighted average common shares outstanding:
Basic	26,548,116			26,954,285			26,734,822			26,900,716			25,267,404			26,807,068			25,393,325			26,825,286
Diluted	26,548,116			26,958,874			26,734,822			26,905,391			25,267,404			26,807,068			25,393,325			26,825,286

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

THREE AND ~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER 29,~~JUNE 28, 2020 AND JUNE 30, 2019 ~~AND SEPTEMBER 30, 2018~~

(In thousands, except share data)

(Unaudited)


	Common Stock				Additional Paid-In Capital				Retained Earnings			Treasury Stock				Total Stockholders' Equity			Common Stock				Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Treasury Stock			Total Stockholders' Equity
	Shares		Amount					Shares				Treasury Stock			Amount								Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Treasury Stock			Total Stockholders' Equity
Balance at December 31, 2017	26,847,458		$	268	Additional Paid-In Capital			$	Retained Earnings	166,823		$	64,425			Total Stockholders' Equity		$	—		$	231,516
Balance at December 30, 2018																			26,858,988		$	270	$	170,290		$	72,268		$	(2,769	)	$	240,059
Stock-based compensation	—		—		889				—			—				889			—		—		792			—			—			792
Vesting of restricted shares	76,578		1		(1		)		—			—				—			68,286		—		(1		)	—			—			(1		)
Cumulative effect of adopting a new accounting standard	—		—		—				57			—				57			—		—		—			14,002			—			14,002
Purchase of treasury stock	(18,406	)	—		—				—			(349		)		(349		)
Net income	—		—		—				4,184			—				4,184
Balance at April 1, 2018	26,905,630		$	269	$	167,711			$	68,666		$	(349	)		$	236,297
Stock-based compensation	—		—		1,017				—			—				1,017
Vesting of restricted shares	38,348		1		(1		)		—			—				—
Purchase of treasury stock	(24,499	)	—		—				—			(603		)		(603		)
Net income	—		—		—				9,493			—				9,493
Balance at July 1, 2018	26,919,479		$	270	$	168,727			$	78,159		$	(952	)		$	246,204
Stock-based compensation	—		—		738				—			—				738
Vesting of restricted shares	613		—		—				—			—				—
Purchase of treasury stock	(54,453	)	—		—				—			(1,532		)		(1,532		)
Net income	—		—		—				2,047			—				2,047
Balance at September 30, 2018	26,865,639		$	270	$	169,465			$	80,206		$	(2,484	)		$	247,457

Balance at December 30, 2018	26,858,988		$	270	$	170,290			$	72,268		$	(2,769	)		$	240,059
Stock-based compensation	—		—		792				—			—				792
Vesting of restricted shares	68,286		—		(1		)		—			—				(1		)
Cumulative effect of adopting a new accounting standard (Note 1)	—		—		—				14,002			—				14,002
Purchase of treasury stock	(158,269	)	—		—				—			(2,199		)		(2,199		)	(158,269	)	—		—			—			(2,199		)	(2,199		)
Net income	—		—		—				2,289			—				2,289			—		—		—			2,289			—			2,289
Balance at March 31, 2019	26,769,005		$	270	$	171,081			$	88,559		$	(4,968	)		$	254,942		26,769,005		270		171,081			88,559			(4,968		)	254,942
Stock-based compensation	—		—		735				—			—				735			—		—		735			—			—			735
Vesting of restricted shares	57,547		1		(1		)		—			—				—			57,547		1		(1		)	—			—			—
Net loss	—		—		—				(43,440		)	—				(43,440		)	—		—		—			(43,440		)	—			(43,440		)
Balance at June 30, 2019	26,826,552		$	271	$	171,815			$	45,119		$	(4,968	)		$	212,237		26,826,552		$	271	$	171,815		$	45,119		$	(4,968	)	$	212,237

Balance at December 29, 2019																			25,612,597		$	271	$	173,132		$	1,884		$	(17,051	)	$	158,236
Stock-based compensation	—		—		611				—			—				611			—		—		812			—			—			812
Vesting of restricted shares	6,277		—		—				—			—				—			73,998		—		—			—			—			—
Purchase of treasury stock	(906,268	)	—		—				—			(9,158		)		(9,158		)	(500,000	)	—		—			—			(3,728		)	(3,728		)
Net loss	—		—		—				(22,182		)	—				(22,182		)	—		—		—			(7,317		)	—			(7,317		)
Balance at September 29, 2019	25,926,561		$	271	$	172,426			$	22,937		$	(14,126	)		$	181,508
Balance at March 29, 2020																			25,186,595		271		173,944			(5,433		)	(20,779		)	148,003
Stock-based compensation																			—		—		1,028			—			—			1,028
Vesting of restricted shares																			101,661		2		(2		)	—			—			—
Net loss																			—		—		—			(8,343		)	—			(8,343		)
Balance at June 28, 2020																			25,288,256		$	273	$	174,970		$	(13,776	)	$	(20,779	)	$	140,688

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER 29,~~JUNE 28, 2020 AND JUNE 30, 2019 ~~AND SEPTEMBER 30, 2018~~

(In thousands)

(Unaudited)


	Nine Months Ended						Six Months Ended
	September 29, 2019			September 30, 2018			June 28, 2020			June 30, 2019
Operating activities:
Net income (loss)	$	(63,333	)	$	15,724
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss (gain) on disposals of property and equipment	(6		)	(1,167		)
Net loss							$	(15,660	)	$	(41,151	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss on disposals of property and equipment							571			8
Stock-based compensation	2,138			2,644			1,840			1,527
Impairment and other lease charges	4,667			6,539			6,518			1,413
Goodwill impairment	67,909			—			—			46,485
Depreciation and amortization	29,520			27,908			18,995			19,355
Amortization of deferred financing costs	203			203			135			135
Amortization of deferred gains from sale-leaseback transactions	—			(2,698		)
Deferred income taxes	(2,112		)	7,856			3,107			—
Changes in other operating assets and liabilities	11,988			(12,721		)	13,462			11,771
Net cash provided by operating activities	50,974			44,288			28,968			39,543
Investing activities:
Capital expenditures:
New restaurant development	(10,681		)	(17,897		)	(1,840		)	(7,835		)
Restaurant remodeling	(368		)	(234		)	(1,087		)	(268		)
Other restaurant capital expenditures	(15,845		)	(15,536		)	(3,741		)	(9,936		)
Corporate and restaurant information systems	(7,179		)	(6,256		)	(2,035		)	(3,632		)
Total capital expenditures	(34,073		)	(39,923		)	(8,703		)	(21,671		)
Proceeds from disposals of properties	1,774			4,676			—			1,774
Proceeds from insurance recoveries	42			813
Net cash used in investing activities	(32,257		)	(34,434		)	(8,703		)	(19,897		)
Financing activities:
Borrowings on revolving credit facility	21,000			18,000			146,940			11,000
Repayments on revolving credit facility	(30,000		)	(23,000		)	(75,420		)	(28,000		)
Principal payments on finance/capital leases	(109		)	(76		)
Financing costs associated with issuance of debt	—			(150		)
Borrowings of unsecured debt							15,000			—
Repayments of unsecured debt							(15,000		)	—
Principal payments on finance leases							(95		)	(59		)
Payments to purchase treasury stock	(11,357		)	(2,484		)	(3,728		)	(2,199		)
Net cash used in financing activities	(20,466		)	(7,710		)
Net cash provided by (used in) financing activities							67,697			(19,258		)
Net change in cash	(1,749		)	2,144			87,962			388
Cash, beginning of period	5,258			3,599			13,413			5,258
Cash, end of period	$	3,509		$	5,743		$	101,375		$	5,646
Supplemental disclosures:
Interest paid on long-term debt	$	3,558		$	2,505
Accruals for capital expenditures	3,198			5,338
Income tax payments (refunds), net	(15,620		)	(3,360		)
Finance/capital lease obligations incurred	495			322

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

1. Basis of Presentation

Business Description. Fiesta Restaurant Group, Inc. ("Fiesta Restaurant Group" or "Fiesta") owns, operates and franchises 2 restaurant brands through its wholly-owned subsidiaries Pollo Operations, Inc. and its subsidiaries, Pollo Franchise, Inc. (collectively "Pollo Tropical"), and Taco Cabana, Inc. and its subsidiaries (collectively "Taco Cabana"). Unless the context otherwise requires, Fiesta and its subsidiaries, Pollo Tropical and Taco Cabana, are collectively referred to as the "Company." At ~~September 29, 2019,~~June 28, 2020, the Company owned and operated 141 Pollo Tropical^® restaurants and ~~165~~146 Taco Cabana^® restaurants. All of the Pollo Tropical restaurants are located in Florida and all of the Taco Cabana restaurants are located in Texas. At ~~September 29, 2019,~~June 28, 2020, the Company franchised a total of 3133 Pollo Tropical restaurants and 87 Taco Cabana restaurants. The franchised Pollo Tropical restaurants ~~included~~include 17 in Puerto Rico, 4 in Panama, 2 in Guyana, 1 in Ecuador, 1 in the Bahamas, 67 on college campuses and 1 at a hospital in Florida. The franchised Taco Cabana restaurants ~~included~~include 6 in New Mexico and 21 on a college ~~campuses~~campus in Texas.

The COVID-19 pandemic has affected and is continuing to affect the restaurant industry and the economy. In response to COVID-19 and in compliance with governmental restrictions, the Company closed the dining room seating areas in all Pollo Tropical and Taco Cabana restaurants, limiting service to take-out, drive-thru, and delivery operations beginning in mid-March 2020. During the second quarter of 2020, certain restrictions were lifted allowing restaurant dining rooms to open on a limited basis. The Company opened certain dining rooms on a limited basis during the second quarter of 2020; however, it temporarily closed all dining rooms on July 12, 2020, in response to increased COVID-19 infection rates in both Texas and Florida. The Company expects the COVID-19 restrictions and economic impact to result in reduced earnings. As the COVID-19 situation is dynamic, the Company does not currently know when it will be able to resume full operations or when its results of operations will return to pre-COVID-19 levels.

Basis of Consolidation. The unaudited condensed consolidated financial statements presented herein reflect the consolidated financial position, results of operations and cash flows of Fiesta and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

Fiscal Year. The Company uses a 52–53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended December ~~30, 2018~~29, 2019 contained 52 weeks. The three and ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~ each contained thirteen and ~~thirty-nine~~twenty-six weeks, respectively. The fiscal year ending ~~December 29, 2019~~January 3, 2021 will contain 5253 weeks.

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three and ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~ have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of such financial statements have been included. The results of operations for the three and ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~ are not necessarily indicative of the results to be expected for the full year.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December ~~30, 2018~~29, 2019 included in the Company's Annual Report on Form 10-K for the fiscal year ended December ~~30, 2018.~~29, 2019. The December ~~30, 2018~~29, 2019 balance sheet data is derived from those audited financial statements.

Guidance Adopted in ~~2019.~~2020. In ~~February 2016, and in subsequent updates,~~August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. ~~2016-02,~~2018-15, ~~Leases (Topic 842)~~Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract ~~("ASC 842")~~, which ~~requires lessee recognition of lease assets and lease liabilities on~~aligns the ~~balance sheet and disclosure of key information about leasing arrangements.~~requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company adopted this new accounting standard on December 30, 2019 and will apply it prospectively to all the related amendments as of December 31, 2018 using the modified retrospective method, with certain optional practical expedients including the transition practical expedient package, which among other things does not require reassessment of lease classification. The Company elected the transition method that allows it to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The comparative period information has not been restated and continues to be reported under the accounting standard in effect for that period.

The Company has recognized lease liabilities and corresponding right-of-use ("ROU") lease assets for substantially all of the leases it previously accounted for as operating leases, including leases related to closed restaurant properties. The initial ROU assets were calculated as the present value of the remaining operating lease payments using the Company's incremental borrowing rate as of December 31, 2018, reduced by accrued occupancyimplementation costs such as certain closed-restaurant lease reserves, accrued rent (including accruals to expense operating lease payments on a straight-line basis), unamortized lease incentives and any unamortized sale-leaseback gains that resulted from off-market terms and increased by unamortized lease acquisition costs. Upon the adoption of ASC 842, the Company no longer records closed restaurant lease reserves, and ROU lease assets are reviewed for impairment with the Company's long-lived assets.

The Company elected the practical expedient to combine lease and non-lease components of real estate contracts, which resulted in classification of certain occupancy related expenses that are included in other restaurant operating expenses for periods prior to the adoption of ASC 842 as restaurant rent expenses in the consolidated statement of operations for periods subsequent to the adoption of ASC 842. The Company separately presents rent expense related to its closed restaurant locations and any sublease

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~~FIESTA RESTAURANT GROUP, INC.~~

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~~(Dollars in thousands, except per share data)~~

income related to these closed restaurant locations within closed restaurant rent expense, net of sublease income in the consolidated statement of operations for periods subsequent to the adoption of ASC 842.

The Company recorded an initial adjustment to the opening balance of retained earnings of $14.0 million associated with previously deferred gains on sale-leaseback transactions and impairment of operating lease right-of-use assets as ofincurred after the date of adoption. ~~This adjustment consisted~~The adoption of ~~$18.6 million in~~this standard did not have a material effect on the Company's financial statements. The Company deferred ~~gains on sale-leaseback transactions, net of a related deferred tax asset of $4.3 million~~ and ~~$0.2 million in impairment charges, net of tax. For any future sale-leaseback transactions,~~amortized application development stage costs for cloud-based computing arrangements over the ~~gain (adjusted for any off-market terms) will be recognized immediately.~~

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Simplifying the Test for Goodwill Impairment~~ ~~("ASU 2017-04"), which eliminates the requirement to calculate the implied fair value of goodwill if the fair value of a reporting unit is less than the carrying amount~~life of the ~~reporting unit. Instead, if~~related service (subscription) agreement in the ~~carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal~~same line item that the fees associated with the subscription arrangement were presented prior to that excess, limited to the total amount of goodwill allocated to that reporting unit. In 2019, the Company early adopted this new accounting standard and performed its interim impairment tests in accordance with ASU 2017-04. In the second quarter of 2019, the Company recognized a $46.5 million impairment of its Taco Cabana reporting unit goodwill, which represents the excessadoption of the reporting unit's carrying value over its fair value at June 30, 2019. In the third quarter of 2019, the Company recognized a $21.4 million impairment of its Taco Cabana reporting unit goodwill. In the third quarter of 2019, the excess of the Taco Cabana reporting unit's carrying value over its fair value was greater than the balance of the reporting unit's goodwill, resulting in a full impairment of the Taco Cabana reporting unit's goodwill. See Note 4—Goodwill.new standard.

Revenue Recognition. Revenue is recognized upon transfer of promised products or services to customers in an amount that reflects the consideration the Company received in exchange for those products or services. Revenues from the Company's owned and operated restaurants are recognized when payment is tendered at the time of sale. Franchise royalty revenues are based on a ~~percent~~

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

percentage of gross sales and are recorded as income when earned. Initial franchise fees and area development fees associated with new franchise agreements are not distinct from the continuing rights and services offered by the Company during the term of the related franchise agreements and are recognized as income over the term of the related franchise agreements. A portion of the initial franchise fee is allocated to training services and is recognized as revenue when the Company completes the training services.

Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect management's own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:


•	Current Assets and Liabilities. The carrying values reported on the balance sheet of cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.

•

Revolving Credit Borrowings. The fair value of outstanding revolving credit borrowings under the Company's senior secured revolving credit facility (the " senior credit facility"), which is considered Level 2, is based on current LIBOR rates. The fair value of the ~~Company's~~ senior credit facility was approximately ~~$69.0~~$146.5 million at ~~September 29, 2019,~~June 28, 2020, and ~~$78.0~~$75.0 million at December ~~30, 2018.~~29, 2019. The carrying value of the ~~Company's~~ senior credit facility was ~~$69.0~~$146.5 million at ~~September 29, 2019~~June 28, 2020 and ~~$78.0~~$75.0 million at December ~~30, 2018.~~29, 2019.

Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible assets, including right-of-use ("ROU") lease assets, by determining whether the carrying value of these assets can be recovered over their respective remaining lives through undiscounted future operating cash flows. Impairment is reviewed ~~when~~whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 3—Impairment of Long-Lived Assets.

Leases. The Company assesses whether an agreement contains a lease at inception. All leases are reviewed for finance or operating classification once control is obtained. The majority of the Company's leases are operating leases. Operating leases are included within operating lease right-of-use assets, other current liabilities, and operating lease liabilities in the condensed consolidated balance sheets. Finance leases are included within property and equipment, net, current portion of long-term debt, and long-term debt, net of current portion in the condensed consolidated balance sheets.

ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating lease ROU asset also includes

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~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Dollars in thousands, except per share data)~~

any lease payments made in advance and is reduced by lease incentives received. As most leases do not provide an implicit rate, the Company uses its incremental borrowing rate at commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option. The Company assumes options are reasonably certain to be exercised when such options are required to achieve a minimum 20-year lease term for new restaurant properties and ~~subsequent to the adoption of ASC 842,~~ when it incurs significant leasehold improvement costs near the end of a lease term. The Company uses judgment and available data to allocate consideration in a contract when it leases land and a building. The Company also uses judgment in determining its incremental borrowing rate, which includes selecting a yield curve based on a synthetic credit rating determined using a valuation model. Lease expense for lease payments is recognized on a straight-line basis over the lease term unless the related ROU asset has been adjusted for an impairment charge. The Company has real estate lease agreements with lease and non-lease components, which are accounted for as a single lease component. ~~See Note 6—Leases.~~

As a result of the COVID-19 pandemic the Company entered into rent deferral and abatement agreements with 185 landlords as of June 28, 2020. Under these agreements, certain rent payments are deferred without penalty for various periods, generally for up to three months, or abated. The Company has elected to account for lease concessions and deferrals resulting directly from COVID-19 as though the enforceable rights and obligations to the concessions and deferrals existed in the respective contracts at lease inception and did not account for the concessions and deferrals as lease modifications.

Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: ~~accrued occupancy costs,~~ insurance liabilities, evaluation

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(Dollars in thousands, except per share data)

for impairment of goodwill and long-lived assets, ~~and~~ lease accounting ~~matters.~~matters, and deferred income tax assets. Actual results could differ from those estimates. Due to the uncertainty associated with the unprecedented nature of the COVID-19 pandemic and the impact it will have on the Company's operations and future cash flows, it is reasonably possible that the estimates of future cash flows used in impairment assessments will change in the near term and the effect of the change could be material. The Company's current estimates assume that operating restrictions, regulations and directives for restaurants and other changes related to COVID-19 will continue to have a significant impact for the remainder of the year with the greatest impact in the near term.

2. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets, consist of the following:


	September 29, 2019		December 30, 2018		June 28, 2020		December 29, 2019
Prepaid contract expenses	$	4,275	$	4,232	$	3,836	$	4,410
Assets held for sale⁽¹⁾	4,336		—		9,856		4,110
Other	3,767		2,330		3,503		2,085
	$	12,378	$	6,562	$	17,195	$	10,605


⁽¹⁾	As of June 28, 2020, 1 operating and 2 closed Pollo Tropical restaurant properties and 2 operating and 2 closed Taco Cabana restaurant properties owned by the Company were classified as held for sale. As of December 29, 2019, 1 closed Pollo Tropical restaurant property and 2 closed Taco Cabana restaurant properties owned by the Company were classified as held for sale.

⁽¹⁾ ~~NaN closed Pollo Tropical restaurant and 2 Taco Cabana restaurant properties owned by the Company were classified as held for sale as of September 29, 2019.~~

3. Impairment of Long-Lived Assets and Other Lease Charges

The Company reviews its long-lived assets, principally property and equipment and lease ROU assets, for impairment at the restaurant level. The Company has elected to exclude operating lease payments and liabilities from future cash flows and carrying values, respectively, in its impairment review. In addition to considering management's plans, known regulatory or governmental actions and damage due to acts of God (hurricanes, tornadoes, etc.), the Company considers a triggering event to have occurred related to a specific restaurant if the restaurant's cash flows, exclusive of operating lease payments, for the last twelve months are less than a minimum threshold or if consistent levels of cash flows for the remaining lease period are less than the carrying value of the restaurant's assets. If an indicator of impairment exists for any of its assets, an estimate of undiscounted future cash flows, exclusive of operating lease payments, over the life of the primary asset for each restaurant is compared to that long-lived ~~asset's~~asset group's carrying ~~value.~~value, excluding operating lease liabilities. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis. If actual performance does not achieve the projections, the Company may recognize impairment charges in future periods, and such charges could be material.

A summary of impairment of long-lived assets and other lease charges (recoveries) recorded by segment is as follows:


	Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
	September 29, 2019		September 30, 2018		September 29, 2019			September 30, 2018		June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
Pollo Tropical	$	165	$	3,295	$	(162	)	$	3,439	$	1,932	$	52	$	5,628	$	(327	)
Taco Cabana	3,089		3,122		4,829			3,100		353		1,699		890		1,740
	$	3,254	$	6,417	$	4,667		$	6,539	$	2,285	$	1,751	$	6,518	$	1,413

Impairment and other lease charges for the three and ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020, for Pollo Tropical include impairment charges of ~~$0.2~~$1.1 million and ~~$0.6~~$4.8 million, respectively, and other lease charges of $0.9 million for both periods. Pollo Tropical impairment charges for the three months ended June 28, 2020, related primarily to ~~additional~~the write-down of assets held for sale to their fair value less costs to sell. For the six months ended June 28, 2020, impairment charges also include the impairment of ~~equipment~~assets from ~~previously impaired~~3 underperforming Pollo Tropical restaurants for which the near-term impact of temporary COVID-19 related closure for 2 locations and sustained low sales resulted in a decline in expected future cash flows. For the three and six months ended June 28, 2020, other lease ~~charge recoveries benefit~~charges for Pollo Tropical related primarily to ~~previously closed~~lease termination charges of $0.9 million for restaurant locations the Company decided not to develop. Impairment and other lease ~~terminations of~~charges for the three and six months ended June 28,

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~~$(0.8)~~2020 for Taco Cabana include impairment charges of $0.6 million and $1.1 million, respectively, and a gain from a lease termination of $(0.2) million for both periods. Taco Cabana impairment charges for the three months ended June 28, 2020, related primarily to the write-down of assets held for sale to their fair value less costs to sell. For the six months ended June 28, 2020, impairment charges also include the impairment of assets for 2 underperforming Taco Cabana restaurants for which continued sales declines coupled with the impact of expected sales declines resulted in a decrease in the estimated future cash flows.

Impairment and other lease charges for the three and six months ended June 30, 2019 for Pollo Tropical include impairment charges of $0.1 million and $0.4 million, respectively, related primarily to additional impairment of equipment from previously impaired restaurants and a lease charge recoveries benefit related to previously closed restaurant lease terminations of $(0.7) million for the ~~nine~~six months ended ~~September 29,~~June 30, 2019. Impairment and other lease charges for the three and ~~nine~~six months ended ~~September 29,~~June 30, 2019 for Taco Cabana include impairment charges of ~~$3.1~~$1.7 million ~~and $4.9 million, respectively,~~ related primarily to impairment of assets for 83 underperforming Taco Cabana restaurants for which continued sales declines resulted in a decrease in the estimated future cash flows and equipment from previously impaired ~~restaurants as well as a lease charge recoveries benefit related to previously closed restaurant lease terminations of $(0.1) million for the nine months ended September 29, 2019.~~

Impairment and other lease charges for the three and nine months ended September 30, 2018 for Pollo Tropical include impairment charges of $3.4 million and $3.6 million, respectively, related primarily to impairment of 3 underperforming restaurants for which continued sales declines resulted in a decrease in the estimated future cash flows and a benefit of $(0.1) million in net lease charge recoveries related to certain previously closed restaurants due to adjustments to estimates of future lease costs. Impairment and other lease charges for the three and nine months ended September 30, 2018 for Taco Cabana include impairment charges of $2.4 million and $2.6 million, respectively, related primarily to impairment of 5 underperforming restaurants for which continued sales declines resulted in a decrease in the estimated future cash flows and other lease charges, net of recoveries, of $0.7 million and $0.5 million, respectively, due primarily to lease charges related to an office relocation in the third quarter of 2018 and other lease charges, net of recoveries, related to certain previously closed restaurants due to adjustments to estimates of future lease costs.restaurants.

The Company determined the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions, the Company's history of using these assets in the operation of its business and the Company's expectation of how a market participant would value the assets. In addition, for those restaurants reviewed for impairment where the Company owns the land and building, the Company utilized third-party information such as a broker quoted value to determine the fair value of the property. The Company also utilized discounted future cash flows to determine the fair value of assets for certain leased restaurants with positive discounted projected future cash flows. The Company utilized current market lease rent and discount rates to determine the fair value of right-of-use lease assets. These fair value asset measurements rely on significant unobservable inputs and are considered Level 3 in the fair value hierarchy. The ~~Company also utilized discounted future cash flows to determine the fair value of assets for certain leased restaurants. The~~ Level 3 assets measured at fair value associated with impairment charges recorded during the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 totaled ~~$1.5~~$7.7 million.

4. ~~Goodwill~~

The Company is required to review goodwill for impairment annually or more frequently when events and circumstances indicate that the carrying amount may be impaired. If the determined fair value of goodwill is less than the related carrying amount, an impairment loss is recognized. The Company performs its annual impairment assessment as of the last day of the fiscal year and has determined its reporting units to be its operating segments, Pollo Tropical and Taco Cabana.

In performing its goodwill impairment test as of December 30, 2018, the Company compared the net book values of its reporting units to their estimated fair values, the latter determined by employing an income-based discounted cash flow analysis approach and a market-based approach, which was corroborated with other value indicators where available, such as comparable company earnings multiples.

As of June 30, 2019, the Company determined that a triggering event had occurred due to a sustained decrease in the market price of the Company's common stock. In response to the triggering event, the Company performed a quantitative impairment test for both the Pollo Tropical and Taco Cabana reporting units. Fair value for each reporting unit was determined using a combination of the income-based approach and two market-based approaches. Based on the impairment test analysis, the fair value of the Pollo Tropical reporting unit substantially exceeded its carrying amount, while the carrying amount for the Taco Cabana reporting unit exceeded its estimated fair value, which indicated an impairment of the Taco Cabana reporting unit. Lower than expected profitability and a lower profitability and growth outlook for the Taco Cabana reporting unit reduced its income-based and market-based approach fair value.

The Company early adopted ASU 2017-04, which eliminates Step 2 from the goodwill impairment test, and requires recognition of an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, limited to the carrying value of the reporting unit's goodwill. In the second quarter of 2019, the Company recorded an impairment charge on the goodwill of its Taco Cabana reporting unit of $46.5 million, which represents the excess of the reporting unit's carrying value over its fair value at June 30, 2019 and which was not deductible for tax purposes.

In addition, in response to a further decrease in the market price of the Company's common stock and lower than expected profitability in the third quarter of 2019, the Company performed a quantitative impairment test for both the Pollo Tropical and Taco Cabana reporting units as of September 29, 2019. Based on the impairment test analysis, which utilized the same approach used in the second quarter of 2019, the fair value of the Pollo Tropical reporting unit continued to substantially exceed its carrying

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~~(Dollars in thousands, except per share data)~~

amount, while the carrying amount for the Taco Cabana reporting unit exceeded its estimated fair value. In the third quarter of 2019, the Company recorded an impairment charge on the goodwill of its Taco Cabana reporting unit of $21.4 million, of which $9.1 million was deductible for tax purposes and resulted in an income tax benefit of $2.1 million. The excess of the Taco Cabana reporting unit's carrying value over its fair value was greater than the balance of the reporting unit's goodwill, resulting in a full impairment of the Taco Cabana reporting unit's goodwill.

~~A summary of changes in goodwill during the nine months ended September 29, 2019 is as follows:~~

Pollo
Tropical Taco
Cabana Total
Balance, December 30, 2018 $ 56,307
$ 67,177
$ 123,484
Impairment charges⁽¹⁾⁽²⁾
—
(67,177 ) (67,177 )
Balance, September 29, 2019 $ 56,307
$ —
$ 56,307

⁽¹⁾ ~~Accumulated impairment losses at September 29, 2019 were $67.2 million. There were 0 accumulated impairment losses at December 30, 2018.~~

⁽²⁾ ~~Impairment charges during the three and nine months ended September 29, 2019 include $0.7 million previously classified as an intangible asset and included in other assets.~~

5. Other Liabilities

Other current liabilities consist of the following:


	September 29, 2019		December 30, 2018		June 28, 2020		December 29, 2019
Operating lease liabilities					$	24,936	$	22,338
Accrued workers' compensation and general liability claims	$	4,770	$	4,886	4,228		4,354
Sales and property taxes	2,054		1,958		1,711		1,889
Accrued occupancy costs	1,189		4,554
Operating lease liabilities	19,647		—
Accrued occupancy costs⁽¹⁾					390		891
Other	2,182		2,688		3,571		2,797
	$	29,842	$	14,086	$	34,836	$	32,269


⁽¹⁾	Accrued occupancy costs primarily consisted of obligations pertaining to closed restaurant locations.

Other non-current liabilities consist of the following:


	September 29, 2019		December 30, 2018		June 28, 2020		December 29, 2019
Accrued occupancy costs	$	78	$	21,534
Accrued workers' compensation and general liability claims					$	7,348	$	7,348
Accrued payroll taxes⁽¹⁾					1,975		—
Deferred compensation	532		867		427		424
Accrued workers' compensation and general liability claims	6,806		6,808
Accrued occupancy costs⁽²⁾					78		78
Other	650		3,295		515		555
	$	8,066	$	32,504	$	10,343	$	8,405

At December 30, 2018, accrued occupancy costs included obligations pertaining to closed restaurant locations and accruals to expense operating lease rental payments on a straight-line basis over the lease term. As a result of adopting ASC 842 on December 31, 2018, at September 29, 2019, accrued


⁽¹⁾	Includes employer Social Security payroll tax deferred as a result of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").


⁽²⁾	Accrued occupancy costs primarily consisted of obligations pertaining to closed restaurant locations.

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(Dollars in thousands, except per share data)

The following table presents the activity in the ~~closed-restaurant~~closed restaurant reserve, of which $0.1 million ~~and $4.4 million are~~is included in non-current ~~accrued occupancy costs~~liabilities at ~~September 29, 2019~~both June 28, 2020 and December ~~30, 2018, respectively,~~29, 2019, with the remainder in other current ~~accrued occupancy costs.~~liabilities.


	Nine Months Ended September 29, 2019			Year Ended December 30, 2018			Six Months Ended June 28, 2020			Year Ended December 29, 2019
Balance, beginning of period	$	8,819		$	12,994		$	752		$	8,819
Provisions for restaurant closures	—			2,228
Additional lease charges (recoveries), net	(808		)	(152		)
Payments, net	(895		)	(6,778		)	(241		)	(1,405		)
Other adjustments⁽¹⁾	(5,992		)	527			(155		)	(6,662		)
Balance, end of period	$	1,124		$	8,819		$	356		$	752

⁽¹⁾As a result of adopting ASC 842 on December 31, 2018, the portion of the closed restaurant reserve related to operating lease rental payments totaling $5.7 million was reclassified and included as a component of the related ROU assets during the nine months ended September 29, 2019. The portion of the closed restaurant reserve related to variable ancillary lease costs was not reclassified and was not included as a reduction to ROU assets.

~~6. Leases~~

The Company utilizes land and buildings in its operations under various operating and finance lease agreements. The Company does not consider any one of these individual leases material to the Company's operations. Initial lease terms are generally for 20 years and, in many cases, provide for renewal options and in most cases rent escalations. As of September 29, 2019, the Company's leases have remaining lease terms of 0.3 years to 22.1 years. Some of the Company's leases include options to extend the lease for up to 40 years. Certain leases require contingent rent, determined as a percentage of sales as defined by the terms of the applicable lease agreement. For most locations, the Company is obligated for occupancy related costs including payment of property taxes, insurance and utilities. Variable lease payments included in rent expense consist of such contingent rent, certain rent payments based on changes in an index and certain occupancy related costs, such as variable common area maintenance expense and property taxes. The Company is not subject to residual value guarantees under any of the lease agreements. Many of the Company's real estate leases contain usage restrictions, but its leases do not contain financial covenants and restrictions.

~~Lease expense consisted of the following:~~

Three Months Ended Nine Months Ended
September 29, 2019 September 29, 2019
Operating lease cost $ 11,396
$ 34,097

Finance lease costs:
Amortization of right-of-use assets $ 59
$ 136
Interest on lease liabilities 58
168
Total finance lease costs $ 117
$ 304

Variable lease costs $ 2,766
8,855
Sublease income (1,135 ) (2,764 )
Total lease costs $ 13,144
$ 40,492

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~~FIESTA RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Dollars in thousands, except per share data)~~

~~Supplemental balance sheet information related to leases is as follows:~~

September 29, 2019
Operating Leases
Operating lease right-of-use assets $ 254,449

Other current liabilities $ 19,647
Operating lease liabilities 258,891
Total operating lease liabilities $ 278,538

Finance Leases
Property and equipment, gross $ 2,874
Accumulated amortization (1,268 )
Property and equipment, net $ 1,606

Current portion of long-term debt $ 204
Long-term debt, net of current portion 1,887
Total finance lease liabilities $ 2,091



~~Weighted Average Remaining Lease Term (in Years)~~
~~Operating leases~~	~~12.1~~
~~Finance leases~~	~~8.1~~

~~Weighted Average Discount Rate~~
~~Operating leases~~	~~7.70~~	%
~~Finance leases~~	~~12.61~~	%

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~~FIESTA RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Dollars in thousands, except per share data)~~

~~Supplemental cash flow information related to leases is as follows:~~

Nine Months Ended
September 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases $ 32,833
Operating cash flows for finance leases 168
Financing cash flows for finance leases 109

Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets 8,618
Finance lease ROU assets 495

Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets 4,058
Operating lease liabilities 4,787

Operating lease right-of-use assets obtained and liabilities incurred as a result of adoption of ASC 842:
Operating lease ROU assets 267,743
Operating lease liabilities 291,373

~~Maturities of lease liabilities were as follows:~~

Operating Leases Finance Leases
Remaining 2019 $ 7,369
$ 87
2020 43,570
460
2021 40,062
475
2022 38,637
475
2023 35,269
428
2024 31,820
350
Thereafter 248,237
1,278
Total lease payments 444,964
3,553
Less amount representing interest (166,426 ) (1,462 )
Total discounted lease liabilities 278,538
2,091
Less current portion (19,647 ) (204 )
Long-term portion of leases liabilities $ 258,891
$ 1,887

As of September 29, 2019, the Company had 5 additional operating leases for restaurant properties. These operating leases will commence in fiscal year 2020 with each lease having an initial lease term of 15 years.

~~Table of Contents~~

~~FIESTA RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Dollars in thousands, except per share data)~~

~~Minimum rent commitments due under capital and non-cancelable operating leases at December 30, 2018 were as follows:~~

Operating Capital
2019 $ 44,427
$ 323
2020 44,144
327
2021 41,396
342
2022 40,215
342
2023 36,587
349
Thereafter 264,704
1,646
Total minimum lease payments⁽¹⁾
$ 471,473
3,329
Less amount representing interest (1,585 )
Total obligations under capital leases 1,744
Less current portion (108 )
Long-term debt under capital leases $ 1,636

⁽¹⁾

~~Minimum~~As a result of adopting ASC 842 on December 31, 2018, the portion of the closed restaurant reserve related to operating lease rental payments ~~include contractual rent payments for~~totaling $6.0 million was reclassified and included as a component of the related ROU assets during the twelve months ended December 29, 2019. The portion of the closed ~~restaurants for which the Company is still obligated under the~~restaurant reserve related to variable ancillary lease ~~agreements~~costs was not reclassified and ~~have~~was not ~~been reduced by minimum sublease rent of $41.4 million due in the future under non-cancelable subleases. See Note 5—Other Liabilities.~~included as a reduction to ROU assets.

The Company subleases land and buildings related to closed restaurant locations and a closed office location under various operating sublease agreements. Initial sublease terms are generally for the period of time remaining on the head lease term and, in some cases, subleases provide for renewal options and in most cases rent escalations. As of September 29, 2019, the Company's subleases have remaining sublease terms of 2.6 years to 19.7 years. Some of the Company's subleases include options to extend the lease for up to 25 years. Variable lease payments included in sublease income consist of certain occupancy related costs, such as variable common area maintenance expense and property taxes where the Company makes the real estate payment and is reimbursed by the lessee. The sublease agreements do not include residual value guarantees. Consistent with the Company's real estate leases, many of the subleases contain usage restrictions, but its subleases do not contain financial covenants and restrictions.

~~The undiscounted cash flows to be received under operating subleases were as follows:~~

Operating Leases
Remaining 2019 $ 937
2020 4,384
2021 4,551
2022 4,493
2023 4,481
2024 4,535
Thereafter 41,798
Total $ 65,179

7.5. Stockholders' Equity

Purchase of Treasury Stock

~~On February 26,~~In 2018, the ~~Company announced that its~~Company's board of directors approved a share repurchase program for up to 1,500,000 shares of the Company's common ~~stock, and on August 7,~~stock. In 2019, ~~it announced that its~~the Company's board of directors approved ~~an increase~~increases to ~~its~~the share repurchase program of an additional ~~500,000~~1,500,000 shares of the Company's common stock for an aggregate approval of 3,000,000 shares of the Company's common stock. Under the share repurchase program, shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by the Company's board of directors. The Company repurchased ~~1,064,537~~500,000 shares of ~~its~~ common stock ~~under the program in open market transactions~~valued at approximately $3.7 million and 158,269 shares of common stock valued at approximately $2.2 million during the ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019, ~~for $11.3 million.~~respectively. The shares repurchased in 2020 were purchased on or before March 12, 2020. The repurchased shares are held as treasury stock at cost. The Company's senior credit facility as amended on July 10, 2020, prohibits share repurchases, and the Company currently does not intend to repurchase additional shares of its common stock for the foreseeable future.

Stock-Based Compensation

During the six months ended June 28, 2020, the Company granted certain employees and non-employee directors a total of 501,706 non-vested restricted shares under the Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan (the "Fiesta Plan"). The shares granted to employees vest and become non-forfeitable over a four-year vesting period. The shares granted to non-employee directors vest and become non-forfeitable over a one-year vesting period, or for an initial grant to a new director, over a five-year vesting period. The weighted average fair value at grant date for non-vested shares issued during the six months ended June 28, 2020 and June 30, 2019 was $8.27 and $13.32 per share, respectively.

The weighted average fair value at grant date for the restricted stock units subject to market conditions granted in the six months ended June 30, 2019 was $1.76 per share.

Stock-based compensation expense for the three and six months ended June 28, 2020 was $1.0 million and $1.8 million, respectively, and for the three and six months ended June 30, 2019 was $0.7 million and $1.5 million, respectively. At June 28, 2020, the total unrecognized stock-based compensation expense related to non-vested restricted shares and restricted stock units was approximately $6.1 million. At June 28, 2020, the remaining weighted average vesting period for non-vested restricted shares was 3.1 years and restricted stock units was 0.7 years.

1610

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

~~Stock-Based Compensation~~

During the nine months ended September 29, 2019, the Company granted certain employees, non-employee directors and a consultant a total of 287,002 non-vested restricted shares under the Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan (the "Fiesta Plan"). The shares granted to employees generally vest and become non-forfeitable over a four-year vesting period. The shares granted to non-employee directors and the consultant vest and become non-forfeitable over a one- and four-year vesting period, respectively. During the three months ended September 29, 2019, the Company granted a certain executive a total of 20,000 non-vested restricted shares under the Fiesta Plan, which vest in 2 tranches over a four-year vesting period. The weighted average fair value at grant date for non-vested shares issued during the nine months ended September 29, 2019 was $13.00 per share.

During the nine months ended September 29, 2019, the Company granted a certain executive a total of 15,348 restricted stock units under the Fiesta Plan, which vest in 2 tranches over a two-year vesting period. The restricted stock units granted to the executive are subject to continued service and attainment of specified share prices of the Company's common stock for a specified period of time within each vesting period. Each tranche vests by the end of a one-year period if the specified target stock price condition for that year is met. If the specified target stock price condition for the first tranche is not met for the year, the cumulative unearned restricted stock units will be rolled over to the subsequent tranche. For the restricted stock units granted in the nine months ended September 29, 2019, the number of shares into which these restricted stock units convert ranges from 0 shares, if the service and market performance conditions are not met, to 15,348 shares, if the service and market performance conditions are met in the last vesting period. The weighted average fair value at grant date for the restricted stock units granted in the nine months ended September 29, 2019 was $1.76 per share.

Stock-based compensation expense for the three and nine months ended September 29, 2019 was $0.6 million and $2.1 million, respectively, and for the three and nine months ended September 30, 2018 was $0.7 million and $2.6 million, respectively. At September 29, 2019, the total unrecognized stock-based compensation expense related to non-vested restricted shares and restricted stock units was approximately $4.8 million. At September 29, 2019, the remaining weighted average vesting period for non-vested restricted shares was 2.7 years and restricted stock units was 0.9 years.

A summary of all non-vested restricted shares and restricted stock units activity for the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 is as follows:


	Non-Vested Shares				Restricted Stock Units				Non-Vested Shares				Restricted Stock Units
	Shares		Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value
Outstanding at December 30, 2018	287,866		$	20.70	231,112		$	12.44
Outstanding at December 29, 2019									355,605		$	15.47	176,362		$	9.42
Granted	287,002		13.00		15,348		1.76		501,706		8.27		—		—
Vested and released	(128,811	)	20.34		(3,418	)	62.05		(174,912	)	15.29		(747	)	32.44
Forfeited	(69,190	)	17.50		(95,123	)	12.97		(13,168	)	13.83		(607	)	24.86
Outstanding at September 29, 2019	376,867		$	15.48	147,919		$	9.83
Outstanding at June 28, 2020									669,231		$	10.15	175,008		$	9.27

The fair value of the non-vested restricted shares and all other restricted stock units is based on the closing price on the date of grant. The fair value of the restricted stock units subject to market conditions was estimated using the Monte Carlo simulation method. The assumptions used to value grant restricted stock units subject to market conditions are detailed below:


	2019			2018			2019
Grant date stock price	$	14.66		$	18.70		$	14.66
Fair value at grant date	$	1.76		$	6.96		$	1.76
Risk free interest rate	2.53		%	2.40		%	2.53		%
Expected term (in years)	2			3			2
Dividend yield	—		%	—		%	—		%
Expected volatility	43.18		%	41.49		%	43.18		%

~~Table of Contents~~

~~FIESTA RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Dollars in thousands, except per share data)~~

8.6. Business Segment Information

The Company owns, operates and franchises 2 restaurant brands, Pollo Tropical^® and Taco Cabana^®, each of which is an operating segment. Pollo Tropical restaurants feature fire-grilled and crispy citrus marinated chicken and other freshly prepared ~~tropical inspired~~tropical-inspired menu items, while Taco Cabana restaurants specialize in ~~Mexican inspired~~Mexican-inspired food.

Each segment's accounting policies are described in the summary of significant accounting policies in Note 1 to the Company's audited financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December ~~30, 2018.~~29, 2019. The primary measure of segment profit or loss used by the chief operating decision maker to assess performance and allocate resources is Adjusted EBITDA, which is defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, goodwill impairment, closed restaurant rent expense, net of sublease income, stock-based compensation expense, other expense (income), net, and certain significant items for each segment that management believes are related to strategic changes and/or are not related to the ongoing operation of the Company's restaurants as set forth in the reconciliation table below.

The "Other" column includes corporate-related items not allocated to reportable segments and consists primarily of corporate-owned property and equipment, lease assets, miscellaneous prepaid costs, capitalized costs associated with the issuance of indebtedness, corporate cash accounts, and a current income tax receivable.

Three Months Ended Pollo Tropical Taco Cabana Other Consolidated
September 29, 2019:
Restaurant sales $ 88,309
$ 75,280
$ —
$ 163,589
Franchise revenue 432
227
—
659
Cost of sales 28,239
23,817
—
52,056
Restaurant wages and related expenses⁽¹⁾
20,944
23,515
—
44,459
Restaurant rent expense 5,477
6,493
—
11,970
Other restaurant operating expenses 12,807
11,346
—
24,153
Advertising expense 3,130
3,255
—
6,385
General and administrative expense⁽²⁾
7,521
6,299
—
13,820
Adjusted EBITDA 10,980
1,174
—
12,154
Depreciation and amortization 5,529
4,636
—
10,165
Capital expenditures 6,402
5,015
985
12,402
September 30, 2018:
Restaurant sales $ 93,592
$ 80,374
$ —
$ 173,966
Franchise revenue 453
229
—
682
Cost of sales 31,219
24,802
—
56,021
Restaurant wages and related expenses⁽¹⁾
21,947
25,996
—
47,943
Restaurant rent expense 4,392
4,737
—
9,129
Other restaurant operating expenses 13,521
13,773
—
27,294
Advertising expense 3,413
3,059
—
6,472
General and administrative expense⁽²⁾
7,291
5,993
—
13,284
Adjusted EBITDA 12,544
2,493
—
15,037
Depreciation and amortization 5,438
4,301
—
9,739
Capital expenditures 4,621
7,489
525
12,635

1811

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)



Three Months Ended	Pollo Tropical		Taco Cabana		Other			Consolidated
June 28, 2020:
Restaurant sales	$	63,292	$	58,255	$	—		$	121,547
Franchise revenue	146		175		—			321
Cost of sales	20,321		17,486		—			37,807
Restaurant wages and related expenses⁽¹⁾	15,108		18,639		—			33,747
Restaurant rent expense	5,660		5,619		—			11,279
Other restaurant operating expenses	10,714		8,275		—			18,989
Advertising expense	1,178		965		—			2,143
General and administrative expense⁽²⁾	6,538		5,750		—			12,288
Adjusted EBITDA	4,993		2,672		—			7,665
Depreciation and amortization	5,233		4,332		—			9,565
Capital expenditures	763		1,060		797			2,620
June 30, 2019:
Restaurant sales	$	92,620	$	78,093	$	—		$	170,713
Franchise revenue	438		230		—			668
Cost of sales	29,318		24,440		—			53,758
Restaurant wages and related expenses⁽¹⁾	21,290		24,476		—			45,766
Restaurant rent expense	5,495		6,403		—			11,898
Other restaurant operating expenses	11,900		10,613		—			22,513
Advertising expense	3,189		2,694		—			5,883
General and administrative expense⁽²⁾	7,700		5,796		—			13,496
Adjusted EBITDA	14,646		4,120		—			18,766
Depreciation and amortization	5,376		4,431		—			9,807
Capital expenditures	4,648		5,930		(444		)	10,134

Nine Months Ended Pollo Tropical Taco Cabana Other Consolidated
September 29, 2019:
Restaurant sales $ 271,955
$ 227,528
$ —
$ 499,483
Franchise revenue 1,325
673
—
1,998
Cost of sales 85,855
70,469
—
156,324
Restaurant wages and related expenses⁽¹⁾
63,387
71,874
—
135,261
Restaurant rent expense 16,393
19,220
—
35,613
Other restaurant operating expenses 36,665
31,764
—
68,429
Advertising expense 9,351
8,438
—
17,789
General and administrative expense⁽²⁾
23,568
18,819
—
42,387
Adjusted EBITDA 39,943
8,189
—
48,132
Depreciation and amortization 16,118
13,402
—
29,520
Capital expenditures 18,195
14,982
896
34,073
September 30, 2018:
Restaurant sales $ 283,447
$ 235,504
$ —
$ 518,951
Franchise revenue 1,376
632
—
2,008
Cost of sales 93,716
72,559
—
166,275
Restaurant wages and related expenses⁽¹⁾
65,652
76,451
—
142,103
Restaurant rent expense 13,024
13,837
—
26,861
Other restaurant operating expenses 38,270
37,128
—
75,398
Advertising expense 9,859
8,187
—
18,046
General and administrative expense⁽²⁾
22,256
18,767
—
41,023
Adjusted EBITDA 42,520
9,652
—
52,172
Depreciation and amortization 16,117
11,791
—
27,908
Capital expenditures 17,656
21,400
867
39,923
Identifiable Assets:
September 29, 2019 $ 348,149
$ 210,238
$ 19,215
$ 577,602
December 30, 2018 207,435
174,681
36,543
418,659
12

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)



Six Months Ended	Pollo Tropical		Taco Cabana		Other			Consolidated
June 28, 2020:
Restaurant sales	$	149,013	$	118,620	$	—		$	267,633
Franchise revenue	550		384		—			934
Cost of sales	48,052		36,031		—			84,083
Restaurant wages and related expenses⁽¹⁾	36,145		38,097		—			74,242
Restaurant rent expense	11,300		11,318		—			22,618
Other restaurant operating expenses	23,100		17,400		—			40,500
Advertising expense	4,682		3,244		—			7,926
General and administrative expense⁽²⁾	14,026		12,646		—			26,672
Adjusted EBITDA	13,773		1,765		—			15,538
Depreciation and amortization	10,511		8,484		—			18,995
Capital expenditures	4,044		3,660		999			8,703
June 30, 2019:
Restaurant sales	$	183,646	$	152,248	$	—		$	335,894
Franchise revenue	893		446		—			1,339
Cost of sales	57,616		46,652		—			104,268
Restaurant wages and related expenses⁽¹⁾	42,443		48,359		—			90,802
Restaurant rent expense	10,916		12,727		—			23,643
Other restaurant operating expenses	23,858		20,418		—			44,276
Advertising expense	6,221		5,183		—			11,404
General and administrative expense⁽²⁾	16,047		12,520		—			28,567
Adjusted EBITDA	28,963		7,015		—			35,978
Depreciation and amortization	10,589		8,766		—			19,355
Capital expenditures	11,793		9,967		(89		)	21,671
Identifiable Assets:
June 28, 2020	$	332,391	$	191,260	$	126,733		$	650,384
December 29, 2019	340,012		195,883		32,746			568,641

⁽¹⁾Includes stock-based compensation expense of ~~$102~~$69 and ~~$145~~$105 for the three and ~~nine~~six months ended ~~September 29, 2019,~~June 28, 2020, respectively, and $6$16 and ~~$56~~$43 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively.

⁽²⁾Includes stock-based compensation expense of ~~$509~~$959 and ~~$1,993~~$1,735 for the three and ~~nine~~six months ended ~~September 29, 2019,~~June 28, 2020, respectively, and ~~$732~~ $719and ~~$2,588~~$1,484 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively.

1913

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

A reconciliation of consolidated net income (loss) to Adjusted EBITDA follows:


Three Months Ended	Pollo Tropical			Taco Cabana			Other		Consolidated			Pollo Tropical			Taco Cabana			Consolidated
September 29, 2019:
June 28, 2020:
Net loss									$	(22,182	)							$	(8,343	)
Benefit from income taxes									(2,946		)							(1,743		)
Loss before taxes												$	(5,186	)	$	(4,900	)	$	(10,086	)
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization												5,233			4,332			9,565
Impairment and other lease charges												1,932			353			2,285
Interest expense												625			612			1,237
Closed restaurant rent expense, net of sublease income												671			1,159			1,830
Other expense (income), net												644			140			784
Stock-based compensation expense in restaurant wages												27			42			69
Total non-general and administrative expense adjustments												9,132			6,638			15,770
General and administrative expense adjustments:
Stock-based compensation expense												523			436			959
Restructuring costs and retention bonuses												452			439			891
Digital and brand repositioning costs												72			59			131
Total general and administrative expense adjustments												1,047			934			1,981
Adjusted EBITDA												$	4,993		$	2,672		$	7,665

June 30, 2019:
Net loss																		$	(43,440	)
Provision for income taxes																		623
Income (loss) before taxes	$	3,857		$	(28,985	)	$	—	$	(25,128	)	$	6,918		$	(49,735	)	$	(42,817	)
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization	5,529			4,636			—		10,165			5,376			4,431			9,807
Impairment and other lease charges	165			3,089			—		3,254			52			1,699			1,751
Goodwill impairment	—			21,424			—		21,424			—			46,485			46,485
Interest expense	398			425			—		823			480			487			967
Closed restaurant rent expense, net of sublease income	601			125			—		726			1,039			296			1,335
Other expense (income), net	5			59			—		64			148			6			154
Stock-based compensation expense in restaurant wages	39			63			—		102			4			12			16
Total non-general and administrative expense adjustments	6,737			29,821			—		36,558			7,099			53,416			60,515
General and administrative expense adjustments:
Stock-based compensation expense	268			241			—		509			351			368			719
Digital and brand repositioning costs	118			97			—		215
Total general and administrative expense adjustments	386			338			—		724
Adjusted EBITDA	$	10,980		$	1,174		$	—	$	12,154

September 30, 2018:
Net income									$	2,047
Benefit from income taxes									(4,892		)
Income (loss) before taxes	$	2,976		$	(5,821	)	$	—	$	(2,845	)
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization	5,438			4,301			—		9,739
Impairment and other lease charges	3,295			3,122			—		6,417
Interest expense	448			476			—		924
Other expense (income), net	(29		)	76			—		47
Stock-based compensation expense in restaurant wages	4			2			—		6
Total non-general and administrative expense adjustments	9,156			7,977			—		17,133
General and administrative expense adjustments:
Stock-based compensation expense	407			325			—		732
Restructuring costs and retention bonuses	5			12			—		17			278			71			349
Total general and administrative expense adjustments	412			337			—		749			629			439			1,068
Adjusted EBITDA	$	12,544		$	2,493		$	—	$	15,037		$	14,646		$	4,120		$	18,766

2014

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)


Nine Months Ended	Pollo Tropical			Taco Cabana			Other		Consolidated
September 29, 2019:
Six Months Ended												Pollo Tropical			Taco Cabana			Consolidated
June 28, 2020:
Net loss									$	(63,333	)							$	(15,660	)
Benefit from income taxes									(1,377		)							(4,748		)
Loss before taxes												$	(7,013	)	$	(13,395	)	$	(20,408	)
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization												10,511			8,484			18,995
Impairment and other lease charges												5,628			890			6,518
Interest expense												1,108			1,090			2,198
Closed restaurant rent expense, net of sublease income												1,273			2,189			3,462
Other expense (income), net												751			941			1,692
Stock-based compensation expense in restaurant wages												38			67			105
Total non-general and administrative expense adjustments												19,309			13,661			32,970
General and administrative expense adjustments:
Stock-based compensation expense												833			902			1,735
Restructuring costs and retention bonuses												452			439			891
Digital and brand repositioning costs												192			158			350
Total general and administrative expense adjustments												1,477			1,499			2,976
Adjusted EBITDA												$	13,773		$	1,765		$	15,538

June 30, 2019:
Net loss																		$	(41,151	)
Provision for income taxes																		1,569
Income (loss) before taxes	$	16,731		$	(81,441	)	$	—	$	(64,710	)	$	12,874		$	(52,456	)	$	(39,582	)
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization	16,118			13,402			—		29,520			10,589			8,766			19,355
Impairment and other lease charges	(162		)	4,829			—		4,667			(327		)	1,740			1,413
Goodwill impairment	—			67,909			—		67,909			—			46,485			46,485
Interest expense	1,534			1,490			—		3,024			1,136			1,065			2,201
Closed restaurant rent expense, net of sublease income	2,784			701			—		3,485			2,183			576			2,759
Other expense (income), net	749			171			—		920			744			112			856
Stock-based compensation expense in restaurant wages	48			97			—		145			9			34			43
Total non-general and administrative expense adjustments	21,071			88,599			—		109,670			14,334			58,778			73,112
General and administrative expense adjustments:
Stock-based compensation expense	1,196			797			—		1,993			928			556			1,484
Restructuring costs and retention bonuses	827			137			—		964			827			137			964
Digital and brand repositioning costs	118			97			—		215
Total general and administrative expense adjustments	2,141			1,031			—		3,172			1,755			693			2,448
Adjusted EBITDA	$	39,943		$	8,189		$	—	$	48,132		$	28,963		$	7,015		$	35,978

September 30, 2018:
Net income									$	15,724
Benefit from income taxes									(246		)
Income (loss) before taxes	$	21,901		$	(6,423	)	$	—	$	15,478
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization	16,117			11,791			—		27,908
Impairment and other lease charges	3,439			3,100			—		6,539
Interest expense	1,467			1,512			—		2,979
Other expense (income), net	(1,577		)	(1,555		)	—		(3,132		)
Stock-based compensation expense in restaurant wages	23			33			—		56
Total non-general and administrative expense adjustments	19,469			14,881			—		34,350
General and administrative expense adjustments:
Stock-based compensation expense	1,458			1,130			—		2,588
Board and shareholder matter costs	(328		)	(269		)	—		(597		)
Restructuring costs and retention bonuses	187			333			—		520
Legal settlements and related costs	(167		)	—			—		(167		)
Total general and administrative expense adjustments	1,150			1,194			—		2,344
Adjusted EBITDA	$	42,520		$	9,652		$	—	$	52,172

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

9.7. Earnings (Loss) Per Share

Basic earnings (loss) per share ("EPS") is computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during each period. Non-vested restricted shares contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares and are thus considered participating securities. The impact of the participating securities is included in the computation of basic EPS pursuant to the two-class method. The two-class method of computing EPS is an earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. EPS is computed by dividing undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and non-vested restricted shares based on the weighted average shares outstanding during the period.

Diluted EPS reflects the potential dilution that could occur if the restricted stock units were to be converted into common shares. Restricted stock units with performance conditions are only included in the diluted EPS calculation to the extent that performance conditions have been met at the measurement date. Diluted EPS is computed by adjusting the basic weighted average number of common shares by the dilutive effect of the restricted stock units, determined using the treasury stock method.

For the three and ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019, all shares of outstanding restricted stock units were excluded from the computation of diluted EPS because including such restricted stock units would have been antidilutive as a result of the net loss in the three and ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019. ~~Weighted average outstanding restricted stock units totaling 568 and 746~~ ~~shares were excluded from the computation of diluted EPS for the three and nine months ended September 30, 2018 because including such restricted stock units would have been antidilutive.~~

The computation of basic and diluted EPS is as follows:


	Three Months Ended					Nine Months Ended					Three Months Ended						Six Months Ended
	September 29, 2019			September 30, 2018		September 29, 2019			September 30, 2018		June 28, 2020			June 30, 2019			June 28, 2020			June 30, 2019
Basic and diluted EPS:
Net income (loss)	$	(22,182	)	$	2,047	$	(63,333	)	$	15,724
Net loss											$	(8,343	)	$	(43,440	)	$	(15,660	)	$	(41,151	)
Less: income allocated to participating securities	—			23		—			171		—			—			—			—
Net income (loss) available to common shareholders	$	(22,182	)	$	2,024	$	(63,333	)	$	15,553
Net loss available to common shareholders											$	(8,343	)	$	(43,440	)	$	(15,660	)	$	(41,151	)
Weighted average common shares—basic	26,548,116			26,954,285		26,734,822			26,900,716		25,267,404			26,807,068			25,393,325			26,825,286
Restricted stock units	—			4,589		—			4,675		—			—			—			—
Weighted average common shares—diluted	26,548,116			26,958,874		26,734,822			26,905,391		25,267,404			26,807,068			25,393,325			26,825,286

Earnings (loss) per common share—basic	$	(0.84	)	$	0.08	$	(2.37	)	$	0.58
Earnings (loss) per common share—diluted	(0.84		)	0.08		(2.37		)	0.58
Loss per common share—basic											$	(0.33	)	$	(1.62	)	$	(0.62	)	$	(1.53	)
Loss per common share—diluted											(0.33		)	(1.62		)	(0.62		)	(1.53		)

~~10.~~8. Commitments and Contingencies

Lease Assignments. Taco Cabana ~~has~~ assigned ~~3 leases~~1 lease to ~~various parties~~a third party on ~~properties~~a property where it no longer operates ~~restaurants~~ with a lease ~~terms~~term expiring ~~on various dates through~~in 2029. ~~The assignees are~~Although the assignee is responsible for making the payments required by the ~~leases. The~~lease, the Company ~~is a guarantor under one of the leases, and it~~ remains secondarily liable as a surety with respect to ~~two of~~ the ~~leases.~~lease. Pollo Tropical assigned 1 lease to a third party on a property where it no longer operates with a lease term expiring in 2033. ~~The~~Although the assignee is responsible for making the payments required by the ~~lease. The~~lease, the Company is a guarantor under the lease.

The maximum potential liability for future rental payments that the Company could be required to make under these leases at ~~September 29, 2019~~June 28, 2020 was ~~$3.3~~$3.0 million. The Company could also be obligated to pay property taxes and other lease-related costs. The obligations under these leases will generally continue to decrease over time as the operating leases expire. The Company does not believe it is probable that it will be ultimately responsible for the obligations under these leases.

Legal Matters. The Company is a party to various litigation matters incidental to the conduct of business. The Company does not believe that the outcome of any of these matters will have a material effect on its condensed consolidated financial statements. The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect

2216

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, the Company does not establish an accrued liability.

9. Income Taxes

The Company has historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annualized effective tax rate for the full fiscal year to "ordinary" income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. Due to the uncertainty created by the events surrounding the COVID-19 pandemic, the actual effective tax rate for the year to date period was used to calculate the income tax benefit for the three and six months ended June 28, 2020 as permitted by Accounting Standards Codification ("ASC") 740-270-30-18.

Tax Law Changes. On March 27, 2020, the CARES Act was signed into law. The CARES Act includes provisions that allow net operating losses in 2018, 2019, and 2020 to be carried back for up to five years and eliminates the 80% taxable income limitation on net operating loss deductions for 2018 through 2020. These changes allowed the Company to record an incremental benefit of $1.8 million during the first quarter of 2020, which represents the impact of carrying net operating losses from 2018 and 2019 back to years with a higher federal corporate income tax rate. Additionally, the year to date income tax benefit includes the impact of the anticipated 2020 net operating loss carryback.

The CARES Act also includes technical amendments that are retroactive to 2018 which permit certain assets to be classified as qualified improvement property and expensed immediately. Reclassifying certain assets as qualified improvement property will result in an incremental benefit. The amount of the incremental benefit is not yet known due to the complexity and interaction of other items and tax years involved in the calculation but will be quantified prior to filing the 2019 federal income tax return.

10. Supplemental Cash Flow Information

The following table details supplemental cash flow disclosures of non-cash investing and financing activities:



	Six Months Ended
	June 28, 2020			June 30, 2019
Supplemental cash flow disclosures of non-cash investing and financing activities:
Accruals for capital expenditures	$	2,079		$	6,073
Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets	19,770			8,009
Finance lease ROU assets	33			304
Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets	683			2,547
Operating lease liabilities	927			3,196
Operating lease right-of-use assets obtained and lease liabilities incurred as a result of adoption of ASC 842:
Operating lease ROU assets	—			267,743
Operating lease liabilities	—			291,373
Supplemental cash flow disclosures:
Interest paid on long-term debt	$	2,105		$	2,729
Income tax payments (refunds), net	(1,041		)	(15,779		)

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

11. Recent Accounting Pronouncements

In ~~August 2018,~~December 2019, the FASB issued ASU No. ~~2018-15,~~2019-12, ~~Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract~~Income Taxes (Topic 740), which ~~aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that~~ is a ~~service contract with~~part of the ~~requirements~~Simplification Initiative being undertaken by the FASB to reduce complexity of accounting standards. The amendments in this update simplify the accounting for ~~capitalizing implementation costs incurred~~income taxes by removing certain exceptions, the most notable for the Company being the exception to ~~develop or obtain internal-use software (and hosting arrangements that include~~the general methodology for calculating income taxes in an ~~internal-use software license).~~interim period when the year-to-date loss exceeds the anticipated loss for the full year. The guidance will be effective for interim and annual periods beginning after December 15, ~~2019.~~2020. Early adoption is permitted and ~~may~~any adjustments should be reflected as of the beginning of the annual period of adoption. Amendments relevant to the Company should be applied ~~either retrospectively or~~on a prospective basis. The Company is still evaluating the impact the standard will have on its financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) ("ASU No. 2020-04"), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective as of March 12, 2020 through December 31, 2022. As of June 28, 2020, the Company's only exposure to LIBOR rates was its senior credit facility. Upon cessation of the LIBOR, the senior credit agreement will be amended to reflect an alternative reference rate. According to ASU No. 2020-04, modifications of contracts within the scope of Topic 470 Debt should be accounted for by prospectively ~~to all implementation costs incurred after~~adjusting the ~~date of adoption.~~effective interest rate. The Company does not expect ~~the standard~~ASU No. 2020-04 to have a ~~material effect~~significant impact on its financial statements.

12. Subsequent Events

On July 10, 2020, the Company entered into the Second Amendment to Credit Agreement (the credit agreement as amended, the "amended senior credit facility") among the Company and a syndicate of lenders. The amended senior credit facility includes adjustments to the Adjusted Leverage Ratio and Fixed Charge Coverage Ratios that are more reflective of current sales and profit trends. For the remainder of 2020, the only applicable financial covenants that require compliance will be a minimum liquidity covenant and a maximum capital expenditure covenant discussed below. The amended senior credit facility reduced the aggregate maximum commitments available for revolving credit borrowings (including standby letters of credit) under the amended senior credit facility (the "revolving commitment") by $30.0 million to $120.0 million on July 10, 2020. The amended senior credit facility further reduces the revolving commitment by (i) $15.0 million to $105.0 million on January 3, 2021 and (ii) $10.0 million to $95.0 million on April 4, 2021. On July 31, 2020, there were $54.0 million in outstanding revolving credit borrowings under the amended senior credit facility.

The amended senior credit facility provides that the Company is not required to be in compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio (each as amended and defined in the amended senior credit facility) under the amended senior credit facility from July 10, 2020, through April 3, 2021. The Company is required to be in compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio beginning with the fiscal quarter ending April 4, 2021 (the first quarter of 2021). After April 3, 2021, the Company will be permitted to exercise equity cures with respect to compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio subject to certain restrictions as set forth in the amended senior credit facility. The amended senior secured credit facility also provides that the Company must maintain minimum liquidity (as defined in the amended senior credit facility agreement, generally unrestricted cash plus available borrowings under the amended senior credit facility) of (i) $40.0 million through September 27, 2020, (ii) $30.0 million from September 28, 2020 through January 3, 2021 and (iii) $25.0 million on January 4, 2021 and thereafter (the "Liquidity Covenant").

Borrowings under the amended senior credit facility will bear interest at a rate per annum, at the Company's option, of (a) the Alternate Base Rate (as defined in the amended senior credit facility) plus the Applicable Rate (as defined in the amended senior credit facility) of 4.0% with a minimum Alternate Base Rate of 2.0% or (b) the Adjusted LIBOR Rate (as defined in the amended senior credit facility) plus the Applicable Rate of 5.0% with a minimum Adjusted LIBOR Rate of 1.0%. Pursuant to the amended senior credit facility, the Company will be subject to a commitment fee of 0.50% per annum on the daily amount of the unused portion of the facility. The amended senior credit facility also provides for a benchmark replacement (as defined in the amended senior credit facility) for LIBOR, which may be a SOFR-based rate, when LIBOR becomes unavailable or an earlier date under certain circumstances.

The outstanding borrowings under the amended senior credit facility are prepayable without penalty (other than customary breakage costs). The amended senior credit facility requires that proceeds received when a prepayment event (as defined in the amended senior credit facility) occurs must be used to reduce the outstanding revolving credit borrowings under the amended senior credit facility which will result in a corresponding reduction of the revolving commitment. The amended senior credit facility

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

further provides that Company must prepay outstanding revolving credit borrowings if the outstanding revolving credit borrowings exceed $75.0 million and excess cash (as defined in the amended senior credit facility) of the Company exceeds $20.0 million.

The amended senior credit facility contains certain covenants, including, without limitation, those limiting Company's and its subsidiaries' ability to, among other things, incur indebtedness, incur liens, sell or acquire assets or businesses, change the character of its business in any material respects, engage in transactions with related parties, make certain investments, make certain restricted payments or pay dividends, including, without limitation, (i) that capital expenditures by the Company cannot exceed an aggregate of $22.0 million for each of the fiscal years ending 2020 and 2021 and cannot exceed an aggregate of $25.0 million for the fiscal year ending 2022 (the "Capital Expenditures Covenant") and (ii) limiting the construction or development of new restaurants.

The amended senior credit facility also provides that the Company will be required to engage a financial advisor or chief restructuring officer if the Company is not in compliance with certain milestones.

The Company's obligations under the amended senior credit facility are secured by all of the assets of the Company and its subsidiaries (including a pledge of all of the capital stock and equity interests of its subsidiaries) pursuant to an amended and restated security agreement. Under the amended senior credit facility, the lenders may terminate their obligation to advance and may declare the unpaid balance of borrowings, or any part thereof, immediately due and payable upon the occurrence and during the continuance of customary defaults which include, without limitation, payment default, covenant defaults, bankruptcy type defaults, defaults on other indebtedness, certain judgments or upon the occurrence of a change of control (as specified in the amended senior credit facility).

The amended senior credit facility contains customary default provisions, including without limitation, a cross default provision pursuant to which it is an event of default under this facility if there is a default under any of the Company's indebtedness having an outstanding principal amount of $5.0 million or more which results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due.

The amended senior credit facility matures on November 30, 2022.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of financial condition and results of operations ("MD&A") is written to help the reader understand our company. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited condensed consolidated financial statements and the accompanying ~~financial statement~~ notes. Any reference to restaurants refers to ~~company-owned~~Company-owned restaurants unless otherwise indicated. Throughout this MD&A, we refer to Fiesta Restaurant Group, Inc., together with its consolidated subsidiaries, as "Fiesta," "we," "our" and "us."

We use a 52–53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended December ~~30, 2018~~29, 2019 contained 52 weeks. The three and ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019 ~~and September 30, 2018~~ each contained thirteen and ~~thirty-nine~~twenty-six weeks, respectively. The fiscal year ending ~~December 29, 2019~~January 3, 2021 will contain 5253 weeks.

Company Overview

We own, operate and franchise two restaurant brands, Pollo Tropical^® and Taco Cabana^®, which ~~recently celebrated~~have over 30^th and 40^th ~~anniversaries,~~ years, respectively, of operating history and loyal customer bases. Our Pollo Tropical restaurants feature fire-grilled and crispy citrus marinated chicken and other freshly prepared ~~tropical inspired~~ menu items, while our Taco Cabana restaurants specialize in ~~Mexican inspired~~Mexican-inspired food made fresh by hand. We believe that both brands offer distinct and unique flavors with broad appeal at a compelling value, which differentiates them in the competitive fast-casual and quick-service restaurant segments. Nearly all of our restaurants offer the convenience of drive-thru windows. As of ~~September 29, 2019,~~June 28, 2020, we owned and operated 141 Pollo Tropical restaurants and ~~165~~146 Taco Cabana restaurants.

We franchise our Pollo Tropical restaurants primarily internationally and as of ~~September 29, 2019,~~June 28, 2020, we had 2425 franchised Pollo Tropical restaurants located in Puerto Rico, Panama, Guyana, Ecuador, and the Bahamas, ~~Panama~~ and ~~Guyana, and six licensed locations~~seven on college campuses and one at a hospital in Florida. We have agreements for the continued development of franchised Pollo Tropical restaurants in certain of our existing franchised markets.

As of ~~September 29, 2019,~~June 28, 2020, we had six franchised Taco Cabana restaurants located in New Mexico and ~~two~~one non-traditional Taco Cabana licensed ~~locations~~location on a college ~~campuses~~campus in Texas.

Recent Events Affecting ~~our~~Our Results of Operations

~~New Lease Accounting Standard~~COVID-19 Pandemic

~~On December 31, 2018,~~The novel coronavirus (COVID-19) pandemic and related regulations, directives, mandates and restrictions are continuing to affect the restaurant industry and the economy. In response to COVID-19 and in compliance with governmental restrictions, we ~~adopted Financial Accounting Standard Board ("FASB") Accounting Standard Update ("ASU") 2016-02,~~ ~~Leases (Topic 842)~~ ~~("ASC 842")~~, closed the dining room seating areas in all Pollo Tropical and Taco Cabana restaurants, limiting service to take-out, drive-thru, and delivery operations beginning in mid-March 2020. We also temporarily closed three Pollo Tropical locations due to the impact of the restrictions on sales, one of which ~~requires lessee recognition~~was reopened during the quarter and subsequently permanently closed in early July. During the second quarter of ~~lease assets~~2020, certain restrictions were relieved allowing restaurant dining rooms to open while restrictions on capacity remained in place. Fiesta began opening certain dining rooms at 50% capacity with easement of municipality restrictions during the second quarter of 2020; however, it temporarily closed all dining rooms on July 12, 2020, in response to increased COVID-19 infection rates in both Texas and ~~lease liabilities~~Florida. Comparable restaurant sales at both Pollo Tropical and Taco Cabana restaurants declined in the second quarter of 2020 compared to the prior year as a result of the pandemic. However, both brands experienced sequential comparable restaurant sales improvement compared to the last two weeks of March 2020. Comparable restaurant sales at Taco Cabana did not decline as significantly as comparable restaurant sales at Pollo Tropical in April and May 2020 due to changes to liquor laws as a result of COVID-19 that allowed Taco Cabana to sell alcohol through drive-thru and take-out. Pollo Tropical did not sell alcohol in the first half of 2020. We believe that the social media about Taco Cabana's drive-thru alcohol offerings is exposing Taco Cabana to a new customer base. Both brands launched fresh and large party/family size meal options called Pollo Pantry and Taco Pantry to allow customers to purchase food through the drive-thru to prepare at home to expand offerings. As we continue to prioritize the well-being of our team members and guests during this pandemic, we are also creating a better business model that is easier and safer for our consumers including expanded delivery options, new curbside and pick-up capabilities, and a much-enhanced online ordering experience. We currently do not expect sales trends to significantly deteriorate further, although there can be no assurance that sales trends will not deteriorate further, and we have implemented cost cutting measures to control costs. We have implemented a number of changes to maximize sales, maintain service, and improve liquidity:

We have adjusted our operating model to better meet our customers' needs during the COVID-19 crisis. To improve speed of service and improve efficiency, we eliminated certain low sales menu options and reduced restaurant hours during periods of low sales and/or in response to government mandated restrictions. We have also adjusted staffing models to match shifting traffic and channel patterns of our guests and to improve efficiency.

We are maximizing off-premise sales opportunities. We significantly increased the number of delivery service providers that offer our brands during the first quarter of 2020, we have modified our menus to include at-home dining options that meet consumer's needs, and we are working with a third party to enhance our online ordering and mobile apps including curbside pickup features. Our new Pollo Tropical mobile app was launched in late July and our new Taco Cabana mobile app is scheduled to launch in September. We also launched curbside pickup for both brands in July.

We have significantly reduced our capital expenditure budget and 2020 capital expenditures will not exceed $22.0 million.

Working capital efficiency has been significantly improved as a result of vendor payment term and pricing renegotiations, which contributed to cash flows from operations of $24.5 million during the second quarter of 2020.

In early April 2020, approximately 170 employees were terminated or furloughed, approximately 60 of which were support personnel representing annualized general and administrative salary savings of approximately $4.4 million, of which approximately $2.6 million is related to terminated employees. The remaining employees were restaurant employees that represented annualized savings of approximately $4.9 million. However, a portion of these employees were recalled during the second quarter and additional restaurant employees may be recalled in the future based on business needs. Additionally, the ~~balance sheet~~salaries for all vice-presidents and ~~disclosure~~executives were reduced by 10% to 35% for the second quarter of ~~key information about leasing arrangements.~~ 2020.

We are marketing 16 owned properties for sale or sale-leaseback, which are expected to result in cash flow increases, although there can be no assurance that any such sales or sale-leaseback transactions will be consummated.

The ~~new lease accounting standard, ASC 842,~~COVID-19 pandemic has not had a significant negative disruptive impact on our supply chain or access to labor, although there can be no assurance that there will not be a significant impact on our ~~results of~~supply chain or access to labor in the future. We are actively monitoring our food suppliers to determine how they are managing their operations ~~because~~to mitigate supply flow and food safety risks. To ensure we ~~had $18.6 million in sale leaseback gains that~~mitigate potential supply availability risk, we ~~no longer receive a benefit to rent expense from~~are building additional inventory backstock levels when appropriate and we have ~~a significant number~~also identified alternative supply sources in key product categories including but not limited to proteins and sanitation and safety supplies.

We incurred additional costs related to the COVID-19 pandemic totaling an estimated $3.4 million during the second quarter of ~~closed restaurants~~2020 including additional labor costs such as COVID-19 special incentive pay, quarantine pay and overtime to cover for ~~which~~employees in quarantine, as well as additional operating expenses for safety related supplies including masks, cleaning supplies and sanitizer. We have discontinued COVID-19 special incentive pay, however we ~~had previous closed restaurant rent reserves~~expect many of the other COVID-19 related costs to continue during the pandemic. In order to support the community, Pollo Tropical and ~~would not have recognized current period expense under~~Taco Cabana also offered additional discounts to first responders and healthcare workers and free kids meals due to school cancellations during the ~~previous accounting standard.~~second quarter.

Restaurant Closures

As a result of ~~adopting this standard, substantially~~restaurant portfolio reviews, we closed 19 underperforming Taco Cabana restaurants in January 2020, all ~~previously deferred gains on sale-leaseback transactions~~of which were ~~recognized~~impaired in prior years. Additionally, we closed one Pollo Tropical restaurant as an adjustment to retained earnings and we will no longer receive the benefit to rent expense from amortizing these gains resulting in higher rent expense being recognized each period over the life of the respective leases. Additionally, prior to the adoption of ASC 842, we recorded closed restaurant reserves representing future minimum lease payments and ancillary costs from the date of the restaurant closure to the end of the remaining lease term net of estimated sublease recoveries when a restaurant closed, recorded expense related to accretion of the reserve each period, and recorded subsequent changes in the assumptions related to the sublease income to expense in the period in which the assumption changed. The subsequent closed restaurant rent payments were recorded as a reduction to the closed restaurant reserves, with no rent related expense being recorded in the period. As a result of ~~adopting ASC 842, accrued rent included~~landlord redevelopment that was not compatible with our use.

Amendment to our Senior Credit Facility

As discussed in ~~these closed restaurant reserves was recorded~~Note 1 to our unaudited condensed consolidated financial statements, we expect the COVID-19 pandemic to have a negative impact on our profitability. On July 10, 2020, we entered into the Second Amendment to Credit Agreement (the credit agreement as amended, the "amended senior credit facility") among the Company and a syndicate of lenders that includes adjustments to our covenants that are more reflective of current sales and profit trends. For the remainder of 2020, the only applicable financial covenant that requires compliance under the amended senior credit facility will be a minimum liquidity target. Pursuant to the amended senior credit facility, the available revolving credit borrowings under the amended senior credit facility will be reduced from $150.0 million to $95.0 million in a phased reduction to operating lease right-of-use assets, and rent expense (the straight-line amortization of the right-of-use assets and accretion of the lease liability) related to closed restaurants is now included within closed restaurant rent expense, net of sublease incomebeginning with a $30.0 million permanent reduction on July 10, 2020, a $15.0 million reduction in the fourth quarter of 2020 and a $10.0 million reduction in the first quarter of 2021. See Note 12 to our unaudited condensed consolidated ~~statement of operations each period. The comparative period information has not been restated~~financial statements and ~~continues to be reported~~Amended Senior Credit Facility under ~~the accounting standard~~Liquidity and Capital Resources in ~~effect~~this MD&A for ~~that period.~~

~~For the three and nine months ended September 29, 2019, the adoption of ASC 842 had the following impact:~~

~~Reduced both Adjusted EBITDA and Restaurant-level Adjusted EBITDA (a non-GAAP financial measure) for Pollo Tropical by $0.4 million and $1.1 million, respectively; and~~

~~Reduced both Adjusted EBITDA and Restaurant-level Adjusted EBITDA (a non-GAAP financial measure) for Taco Cabana by $0.5 million and $1.4 million, respectively.~~

~~Resulted in the recognition of additional rent related expense for closed restaurant locations of approximately $0.4 million and $1.3 million for Pollo Tropical, respectively.~~

Resulted in the recognition of less rent related expense for closed restaurant locations of approximately $(0.1) million and additional rent related expense for closed restaurant locations of approximately $0.3 million for Taco Cabana, respectively.

We recognized closed restaurant rent expense, net of sublease income, for the three and nine months ended September 29, 2019 of approximately $0.6 million and $2.8 million, respectively, for Pollo Tropical and approximately $0.1 million and $0.7 million, respectively, for Taco Cabana. However, we did not recognize lease charges for subsequent changes in assumptions related to the timing of future sublease income.

~~Taco Cabana Goodwill Impairment~~

As of June 30, 2019, the sustained decrease in the market price of Fiesta's common stock was determined to be a triggering event requiring an interim impairment test of goodwill. In addition, in response to a further decrease in the market price of Fiesta's common stock and lower than expected profitability in the third quarter of 2019, we also performed an interim impairment test of goodwill as of September 29, 2019. Based on these interim impairment tests, we recorded non-cash impairment charges to write down the value of goodwill for the Taco Cabana reporting unit in the amount of $46.5 million, which was not tax deductible, indiscussion.

During the second quarter of ~~2019~~2020 we borrowed all available funds under our senior secured revolving credit facility prior to the execution of the amended senior credit facility. We repaid borrowings under our amended senior credit facility as follows: $30.0 million on July 10, 2020, pursuant to the terms of the amended senior credit facility and ~~$21.4~~an additional $62.5 million ~~of which $9.1~~through July 31, 2020. On July 31, 2020, there were $54.0 million ~~was tax deductible,~~ in ~~the third quarter of 2019.~~outstanding revolving credit borrowings under our amended senior credit facility.

Executive Summary—Consolidated Operating Performance for the Three Months Ended ~~September 29, 2019~~June 28, 2020

Our ~~third~~second quarter ~~2019~~2020 results and highlights include the following:

We recognized a net loss of ~~$(22.2)~~$(8.3) million, or ~~$(0.84)~~$(0.33) per diluted share, in the ~~third~~second quarter of ~~2019~~2020 compared to a net ~~income~~loss of ~~$2.0~~$(43.4) million, or ~~$0.08~~$(1.62) per diluted share, in the ~~third~~second quarter of ~~2018,~~2019, due primarily to a ~~$21.4~~$46.5 million goodwill impairment charge for the Taco Cabana reporting unit in the ~~adoption~~second quarter of ~~ASC 842 discussed above, and higher depreciation and amortization and general and administrative expenses,~~2019 partially offset by ~~lower cost~~the impact of ~~sales and restaurant wages and related expenses as a percentage of restaurant sales and lower restaurant impairment and other lease charges in the third quarter of 2019. In addition,~~ declines in comparable restaurant sales at both brands ~~including~~in 2020 and additional costs related to the ~~impact~~COVID-19 pandemic. In addition, lease termination costs and the write-off of ~~Hurricane Dorian~~site development costs, as well as higher delivery fees at ~~Pollo Tropical,~~both brands negatively contributed to the decrease in net income in the ~~third~~second quarter of ~~2019.~~2020. These negative contributions were partially offset by lower general and administrative expenses, advertising expenses and pre-opening costs.

Total revenues decreased ~~6.0%~~28.9% in the ~~third~~second quarter of ~~2019~~2020 to ~~$164.2~~$121.9 million compared to ~~$174.6~~$171.4 million in the ~~third~~second quarter of ~~2018,~~2019, driven by a decrease in comparable restaurant sales at both brands (including as a result of the impact of COVID-19), and the ~~net~~ impact of ~~opening new restaurants and~~ closing ~~14 underperforming Pollo Tropical restaurants and 11~~19 underperforming Taco Cabana restaurants in ~~2018.~~the first quarter of 2020. Comparable restaurant sales decreased ~~3.8%~~31.6% for our Pollo Tropical restaurants resulting from a decrease in comparable restaurant transactions of ~~2.7% accompanied by a decrease~~38.2% and an increase in ~~average check~~the net impact of ~~1.1%. We estimate that Hurricane Dorian, which resulted in temporary restaurant closures, negatively impacted comparable restaurant sales for Pollo Tropical by approximately 1.5%~~pricing and product/channel mix of 6.6%. Comparable restaurant sales decreased ~~4.8%~~19.2% for our Taco Cabana restaurants resulting from a decrease in comparable restaurant transactions of ~~5.6% partially offset by~~29.0% and an increase in ~~average check~~the net impact of ~~0.8%~~product/channel mix of 9.8%.

Consolidated Adjusted EBITDA decreased ~~$2.9~~$11.1 million ~~(which includes the negative impact of a $0.8 million increase in rent expense as a result of adopting ASC 842)~~ in the ~~third~~second quarter of 2020 to $7.7 million compared to $18.8 million in the second quarter of 2019, ~~to $12.2 million compared to $15.0 million in the third quarter of 2018,~~ driven primarily by the impact of lower restaurant sales, ~~including~~additional costs related to the ~~impact of Hurricane Dorian,~~COVID-19 pandemic and higher ~~rent expense as a result of adopting ASC 842 and higher~~delivery fees, partially offset by lower general and administrative expenses, ~~partially offset by improved restaurant operating margins related to lower cost of sales~~advertising expenses and restaurant wages as a percent of sales. We estimate that Hurricane Dorian, which resulted in temporary restaurant closures, negatively affected Pollo Tropical and Consolidated Adjusted EBITDA by approximately $0.6 million.pre-opening costs. Consolidated Adjusted EBITDA is a non-GAAP financial measure of performance. For a discussion of our use of Consolidated Adjusted EBITDA and a reconciliation from net income to Consolidated Adjusted EBITDA, see "Management's Use of Non-GAAP Financial Measures."

~~During the third quarter of 2019, we opened one Pollo Tropical restaurant in Florida.~~

Results of Operations

The following table summarizes the changes in the number and mix of Pollo Tropical and Taco Cabana Company-owned and franchised restaurants.


	Pollo Tropical					Taco Cabana					Pollo Tropical						Taco Cabana
											Owned		Franchised		Total		Owned		Franchised		Total
December 29, 2019											142		32		174		164		8		172
New											—		1		1		1		—		1
Closed											(1	)	—	��	(1	)	(19	)	—		(19	)
March 29, 2020											141		33		174		146		8		154
New											—		—		—		—		—		—
Closed											—		—		—		—		(1	)	(1	)
June 28, 2020											141		33		174		146		7		153
	Owned	Franchised		Total		Owned		Franchised	Total
December 30, 2018	139	30		169		162		8	170		139		30		169		162		8		170
New	—	1		1		2		—	2		—		1		1		2		—		2
Closed	—	—		—		—		—	—		—		—		—		—		—		—
March 31, 2019	139	31		170		164		8	172		139		31		170		164		8		172
New	1	—		1		1		—	1		1		—		1		1		—		1
Closed	—	—		—		—		—	—		—		—		—		—		—		—
June 30, 2019	140	31		171		165		8	173		140		31		171		165		8		173
New	1	—		1		—		—	—
Closed	—	—		—		—		—	—
September 29, 2019	141	31		172		165		8	173

December 31, 2017	146	31		177		166		7	173
New	—	—		—		—		—	—
Closed	—	—		—		—		—	—
April 1, 2018	146	31		177		166		7	173
New	4	—		4		6		1	7
Closed	—	(1	)	(1	)	(2	)	—	(2	)
July 1, 2018	150	30		180		170		8	178
New	—	—		—		1		—	1
Closed	—	—		—		—		—	—
September 30, 2018	150	30		180		171		8	179

Three Months Ended ~~September 29, 2019~~June 28, 2020 Compared to Three Months Ended ~~September~~June 30, ~~2018~~2019

The following table sets forth, for the three months ended ~~September 29,~~June 28, 2020 and June 30, 2019, ~~and September 30, 2018,~~ selected consolidated operating results as a percentage of consolidated restaurant sales and select segment operating results as a percentage of applicable segment restaurant sales.


	Three Months Ended												Three Months Ended
	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018		June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
	Pollo Tropical				Taco Cabana				Consolidated				Pollo Tropical				Taco Cabana				Consolidated
Restaurant sales:
Pollo Tropical									54.0	%	53.8	%									52.1	%	54.3	%
Taco Cabana									46.0	%	46.2	%									47.9	%	45.7	%
Consolidated restaurant sales									100.0	%	100.0	%									100.0	%	100.0	%
Costs and expenses:
Cost of sales	32.0	%	33.4	%	31.6	%	30.9	%	31.8	%	32.2	%	32.1	%	31.7	%	30.0	%	31.3	%	31.1	%	31.5	%
Restaurant wages and related expenses	23.7	%	23.4	%	31.2	%	32.3	%	27.2	%	27.6	%	23.9	%	23.0	%	32.0	%	31.3	%	27.8	%	26.8	%
Restaurant rent expense	6.2	%	4.7	%	8.6	%	5.9	%	7.3	%	5.2	%	8.9	%	5.9	%	9.6	%	8.2	%	9.3	%	7.0	%
Other restaurant operating expenses	14.5	%	14.4	%	15.1	%	17.1	%	14.8	%	15.7	%	16.9	%	12.8	%	14.2	%	13.6	%	15.6	%	13.2	%
Advertising expense	3.5	%	3.6	%	4.3	%	3.8	%	3.9	%	3.7	%	1.9	%	3.4	%	1.7	%	3.4	%	1.8	%	3.4	%
Pre-opening costs	0.1	%	0.1	%	—	%	0.1	%	—	%	0.1	%	—	%	0.2	%	—	%	0.3	%	—	%	0.2	%

Consolidated Revenues. Revenues include restaurant sales and franchise royalty revenues and fees. Restaurant sales consist of food and beverage sales, net of discounts, at our ~~Company-owned~~ restaurants. Franchise royalty revenues and fees represent ongoing royalty payments that are determined based on a percentage of franchisee sales and the amortization of initial franchise fees and area development fees associated with the opening of new franchised restaurants. Restaurant sales are influenced by new restaurant openings, closures of restaurants and changes in comparable restaurant sales.

Total revenues decreased ~~6.0%~~28.9% to ~~$164.2~~$121.9 million in the ~~third~~second quarter of ~~2019~~2020 from ~~$174.6~~$171.4 million in the ~~third~~second quarter of ~~2018.~~2019. Restaurant sales decreased ~~6.0%~~28.8% to ~~$163.6~~$121.5 million in the ~~third~~second quarter of ~~2019~~2020 from ~~$174.0~~$170.7 million in the ~~third~~second quarter of ~~2018.~~2019.

The following table presents the primary drivers of the decreases in restaurant sales for both Pollo Tropical and Taco Cabana for the ~~third~~second quarter of ~~2019~~2020 compared to the ~~third~~second quarter of ~~2018~~2019 (in millions).


Pollo Tropical:
Decrease in comparable restaurant sales	$	(3.4	)	$	(28.5	)
Decrease in sales related to closed restaurants, net of new restaurants	(1.9		)	(0.8		)
Total decrease	$	(5.3	)	$	(29.3	)

Taco Cabana:
Decrease in comparable restaurant sales	$	(3.5	)	$	(13.5	)
Decrease in sales related to closed restaurants, net of new restaurants	(1.6		)	(6.3		)
Total decrease	$	(5.1	)	$	(19.8	)

Restaurants are included in comparable restaurant sales after they have been open for 18 months.

Comparable restaurant sales decreased ~~3.8%~~31.6% and ~~4.8%~~19.2% for Pollo Tropical and Taco Cabana restaurants, respectively, in the ~~third~~second quarter of ~~2019.~~2020. Increases or decreases in comparable restaurant sales result primarily from an increase or decrease in comparable restaurant transactions and in average check. Changes in average check are primarily driven by menu price increases net of discounts and ~~promotions.~~promotions and sales mix.

For Pollo Tropical, a decrease in comparable restaurant transactions of ~~2.7%~~38.2% was ~~accompanied~~partially offset by ~~a decrease in average check of 1.1%~~an increase in the ~~third~~net impact of pricing and product/channel mix of 6.6% in the second quarter of ~~2019~~2020 compared to the ~~third~~second quarter of ~~2018.~~2019. The ~~decrease~~increase in ~~average check~~pricing and product/channel mix was driven primarily by ~~discounted pricing for Pollo Time, partially offset by~~increases in delivery and drive-thru average check and sales channel penetration, and menu price increases of ~~1.1%~~0.2%. As a result of new restaurant openings, sales cannibalization of existing restaurants negatively impacted comparable restaurant sales for Pollo Tropical by 0.8%. In addition, we estimate that Hurricane Dorian, which resulted in temporary restaurant closures, negatively impacted comparable restaurant sales for Pollo Tropical by approximately 1.5%.

For Taco Cabana, a decrease in comparable restaurant transactions of ~~5.6%~~29.0% was partially offset by an increase in ~~average check~~the net impact of ~~0.8%~~product/channel mix of 9.8% in the ~~third~~second quarter of ~~2019~~2020 compared to the ~~third~~second quarter of ~~2018.~~2019. The increase in ~~average check~~product/channel mix was driven primarily by ~~menu price~~ increases ~~of 1.4%~~in drive-thru and ~~the introduction of higher priced shareables earlier~~delivery sales channel penetration and growth in ~~2019, partially offset by discounted pricing~~average check for ~~TC Time.~~drive-thru compared to last year due in part to an increase in transactions that include alcohol.

Franchise revenues ~~remained flat~~decreased by $0.3 million to $0.3 million in the ~~third~~second quarter of 2020 compared to the second quarter of 2019 ~~compared~~due to ~~the third quarter~~lower sales at franchised restaurants in 2020 primarily as a result of ~~2018.~~COVID-19.

Operating costs and expenses. Operating costs and expenses include cost of sales, restaurant wages and related expenses, other restaurant expenses and advertising expenses. Cost of sales consists of food, paper and beverage costs including packaging costs, less rebates and purchase discounts. Cost of sales is generally influenced by changes in commodity costs, the sales mix of items sold and the effectiveness of our restaurant-level controls to manage food and paper costs. Key commodities, including chicken and beef, are generally purchased under contracts for future periods of up to one year.

Restaurant wages and related expenses include all restaurant management and hourly productive labor costs, employer payroll taxes, restaurant-level bonuses and related benefits. Payroll and related taxes and benefits are subject to inflation, including minimum wage increases and increased costs for health insurance, workers' compensation insurance and state unemployment insurance.

Other restaurant operating expenses include all other restaurant-level operating costs, the major components of which are utilities, repairs and maintenance, general liability insurance, sanitation, supplies and credit card and delivery fees. ~~In addition, for periods prior to December 31, 2018, other restaurant operating expenses include real estate taxes related to our leases characterized as operating leases.~~

Advertising expense includes all promotional expenses including television, radio, billboards and other sponsorships and promotional activities and agency fees.

Pre-opening costs include costs incurred prior to opening a restaurant, including restaurant employee wages and related expenses, travel expenditures, recruiting, training, promotional costs associated with the restaurant opening and rent, including any non-cash rent expense recognized during the construction period. Pre-opening costs are generally incurred beginning four to six months prior to a restaurant opening.

The following tables present the primary drivers of the changes in the components of restaurant operating margins for Pollo Tropical and Taco Cabana for the ~~third~~second quarter of ~~2019~~2020 compared to the ~~third~~second quarter of ~~2018.~~2019. All percentages are stated as a percentage of applicable segment restaurant sales:



Pollo Tropical:
Cost of sales:
~~Lower commodity costs~~	~~(1.5~~	)%
~~Menu price increases~~	~~(0.3~~	)%
~~Sales mix~~	~~(0.3~~	)%
Higher promotions and discounts	0.7	%
Higher commodity costs	0.6	%
~~Other~~Lower rebates and discounts	~~0.1~~0.4	%
Sales mix	0.3	%
Higher packaging costs	0.2	%
Operating efficiency	(1.7	)%
Menu price increases	(0.1	)%
Net ~~decrease~~increase in cost of sales as a percentage of restaurant sales	~~(1.4~~0.4	)%

Restaurant wages and related expenses:
Higher labor costs ~~for comparable restaurants~~due to COVID-19⁽¹⁾	~~1.1~~1.9	%
Higher workers' compensation costs	0.2	%
Impact of lower sales on payroll taxes	0.1	%
Lower labor costs due to ~~restaurant closures, net of new restaurants~~labor efficiencies	(~~0.5~~0.9	)%
Lower medical benefits costs	(0.3	)%
Lower incentive bonus	(0.2	)%
Other	0.1	%
Net increase in restaurant wages and related costs as a percentage of restaurant sales	~~0.3~~0.9	%

Other operating expenses:
~~Contracted cleaning services~~Higher delivery fees	~~0.6~~2.1	%
~~Higher delivery fees~~Impact of lower sales on utilities costs	0.5	%
~~Real estate tax classification~~⁽²⁾ Impact of lower sales on operating supplies	~~(0.9~~0.4	)%
~~Lower repair and maintenance~~Impact of lower sales on sanitation costs	(0.3	)%
Higher linen and uniform expense including COVID-19 masks and the impact of lower sales	0.3	%
Higher insurance costs including the impact of lower sales	0.3	%
Other	0.2	%
Net increase in other restaurant operating expenses as a percentage of restaurant sales	~~0.1~~4.1	%

Advertising expense:
~~Timing of~~Reduced advertising	(~~0.1~~1.5	)%
Net decrease in advertising expense as a percentage of restaurant sales	(~~0.1~~1.5	)%

Pre-opening costs:
Decrease in the number of restaurant openings	(0.2	)%
Net ~~change~~decrease in pre-opening costs as a percentage of restaurant sales	—(0.2	)%


⁽¹⁾~~Includes the impact of higher wage rates and overtime due to labor shortages.~~ ⁽²⁾~~Due to the adoption of ASC 842, real estate taxes are included in rent expense in 2019 and in other operating expenses in 2018.~~	Primarily includes the impact of COVID-19 related special incentive pay, which is partially offset (0.4%) by lower incentive bonus resulting from the special incentive pay.



Taco Cabana:
Cost of sales:
~~Menu offering improvement and higher~~Lower commodity costs	~~1.8~~(2.6	)%
Lower promotions and discounts	(0.3	)%
Operating efficiency	(0.3	)%
Sales mix	1.0	%
~~Higher promotions~~Lower rebates and discounts	~~0.2~~0.5	%
~~Sales mix~~Higher liquor tax	0.4	%
Net decrease in cost of sales as a percentage of restaurant sales	(~~0.7~~1.3	)%
~~Menu price increases~~
Restaurant wages and related expenses:
Higher labor costs due to COVID-19⁽¹⁾	2.4	%
Higher medical benefit costs	0.4	%
Lower labor costs due to labor efficiencies	(~~0.5~~2.1	)%
~~Operating efficiency~~	~~(0.1~~	)%
Net increase in ~~cost of sales~~restaurant wages and related costs as a percentage of restaurant sales	0.7	%

~~Restaurant wages and related expenses:~~
~~Lower labor costs~~⁽¹⁾	~~(0.5~~	)%
~~Lower medical benefit costs~~	~~(0.4~~	)%
~~Lower incentive bonus~~	~~(0.3~~	)%
~~Other~~	~~0.1~~	%
~~Net decrease in restaurant wages and related costs as a percentage of restaurant sales~~	~~(1.1~~	)%

Other operating expenses:
~~Real estate tax classification~~⁽²⁾ Higher delivery fees	1.2	%
Impact of lower sales on operating supplies and higher operating supplies for open restaurants	0.4	%
Higher linen and uniform expense including COVID-19 masks and the impact of lower sales	0.3	%
Lower repair and maintenance costs	(~~1.6~~0.6	)%
Lower restaurant entertainment costs	(0.2	)%
Lower insurance costs	(0.2	)%
Lower security costs	(~~0.3~~0.2	)%
~~Lower utility costs~~Other	(0.1	)%
~~Higher delivery fees~~	~~0.3~~	%
~~Other~~	~~(0.3~~	)%
Net ~~decrease~~increase in other restaurant operating expenses as a percentage of restaurant sales	~~(2.0~~0.6	)%

Advertising expense:
~~Timing of~~Reduced advertising	~~0.5~~(1.7	)%
Net ~~increase~~decrease in advertising expense as a percentage of restaurant sales	~~0.5~~(1.7	)%

Pre-opening costs:
Decrease in the number of restaurant openings	(~~0.1~~0.3	)%
Net decrease in pre-opening costs as a percentage of restaurant sales	(~~0.1~~0.3	)%

⁽¹⁾~~Improved staffing utilization, partially offset by higher wage rates and overtime due to labor shortages.~~

⁽²⁾ ~~Due to the adoption of ASC 842, real estate taxes are included in rent expense in 2019 and in other operating expenses in 2018.~~


⁽¹⁾	Primarily includes the impact of COVID-19 related special incentive pay, which is partially offset (0.4%) by lower incentive bonus resulting from the special incentive pay.

Consolidated Restaurant Rent Expense. ~~Beginning December 31, 2018, restaurant~~Restaurant rent expense includes base rent, contingent rent and common area maintenance and property taxes related to our leases characterized as operating leases. For periods prior to the adoption of ASC 842 on December 31, 2018, restaurant rent expense included base rent and contingent rent on our leases characterized as operating leases, reduced by amortization of gains on sale-leaseback transactions. Restaurant rent expense, as a percentage of total restaurant sales, increased to ~~7.3%~~9.3% in the ~~third~~second quarter of 2020 from 7.0% in the second quarter of 2019 ~~from 5.2% in the third quarter of 2018~~ due primarily to a $0.8 million increase in rent expense as a result of no longer amortizing gains on sale-leaseback transactions, the inclusion of property taxes and common area maintenance costs related to our leases characterized as operating leases, and the impact of lower ~~comparable~~ restaurant sales.

Consolidated General and Administrative Expenses. General and administrative expenses are comprised primarily of (1) salaries and expenses associated with the development and support of our ~~company~~Company and brands and the management oversight of the operation of our restaurants; and (2) legal, auditing and other professional fees, corporate system costs, and stock-based compensation expense.

General and administrative expenses were ~~$13.8~~$12.3 million for the ~~third~~second quarter of ~~2019~~2020 and ~~$13.3~~$13.5 million for the ~~third~~second quarter of ~~2018,~~2019, and as a percentage of total revenues, general and administrative expenses increased to ~~8.4%~~10.1% in the ~~third~~second quarter of ~~2019~~2020 compared to ~~7.6%~~7.9% in the ~~third~~second quarter of ~~2018,~~2019, due primarily to the impact of lower total revenues ~~on higher general~~partially offset by lower management support costs primarily as a result of headcount reductions for the second quarter of 2020. General and

administrative expenses for the ~~third~~second quarter of ~~2019, including higher incentive compensation~~2020 included $0.9 million related to severance costs ~~due~~associated with positions eliminated in response to the ~~timing of incentive compensation accrual adjustments~~COVID-19 pandemic and ~~investments in off-premise support in 2019. General and administrative expenses for the~~

~~third quarter of 2019 included $0.2~~$0.1 million related to digital and brand repositioning ~~costs and $0.2 million related to search fees for senior executive positions.~~costs. General and administrative expenses for the ~~third~~second quarter of ~~2018~~2019 included ~~$0.4 million in costs related to discontinuing certain services and $0.4~~$0.3 million related to ~~system implementation and project-oriented advisory services.~~restructuring costs due to eliminated or relocated positions.

Adjusted EBITDA. Adjusted EBITDA is the primary measure of segment profit or loss used by our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance and is defined as earnings attributable to the applicable segment before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, goodwill impairment, closed restaurant rent expense, net of sublease income, stock-based compensation expense, other expense (income), net and certain significant items that management believes are related to strategic changes and/or are not related to the ongoing operation of our restaurants.

Adjusted EBITDA may not necessarily be comparable to other similarly titled captions of other companies due to differences in methods of calculation. Adjusted EBITDA for each of our segments includes an allocation of general and administrative expenses associated with administrative support for executive management, information systems and certain finance, legal, supply chain, human resources, ~~construction,~~development, and other administrative functions. Consolidated Adjusted EBITDA is a non-GAAP financial measure of performance. For a discussion of our use of Adjusted EBITDA and Consolidated Adjusted EBITDA and a reconciliation from net income (loss) to Consolidated Adjusted EBITDA, see the heading entitled "Management's Use of Non-GAAP Financial Measures."

Adjusted EBITDA for Pollo Tropical decreased to ~~$11.0 million (which includes the negative impact of a $0.4 million increase in rent expense as a result of adopting ASC 842) in the third quarter of 2019 from $12.5~~$5.0 million in the ~~third~~second quarter of ~~2018~~2020 from $14.6 million in the second quarter of 2019 due primarily to the impact of lower restaurant sales, including the impact of ~~Hurricane Dorian,~~COVID-19, higher ~~rent expense, contracted cleaning services,~~ delivery fees, ~~and general and administrative expenses,~~additional costs related to the COVID-19 pandemic and higher ~~restaurant wages and related expenses~~labor costs as a percentage of restaurant sales, partially offset by lower ~~cost of sales as a percentage of restaurant sales.~~advertising costs and general and administrative expenses. Adjusted EBITDA for Taco Cabana decreased to ~~$1.2 million (which includes the negative impact of a $0.5 million increase in rent expense as a result of adopting ASC 842) in the third quarter of 2019 from $2.5~~$2.7 million in the ~~third~~second quarter of ~~2018~~2020 from $4.1 million in the second quarter of 2019 due primarily to the impact of lower restaurant sales, higher delivery fees and ~~higher rent, general and administrative expenses and advertising expense and higher cost of sales as a percentage of sales,~~additional costs related to the COVID-19 pandemic, partially offset by lower ~~restaurant wages~~commodity costs, advertising costs, and ~~related expenses as a percentage of restaurant sales.~~general and administrative expenses. Consolidated Adjusted EBITDA decreased to ~~$12.2~~$7.7 million in the ~~third~~second quarter of ~~2019~~2020 from ~~$15.0~~$18.8 million in the ~~third~~second quarter of ~~2018.~~2019.

Restaurant-level Adjusted EBITDA. We also use Restaurant-level Adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure to evaluate the performance and profitability of our restaurants in the aggregate, which is defined as Adjusted EBITDA excluding franchise royalty revenues and fees, pre-opening costs and general and administrative expenses (including corporate-level general and administrative expenses).

Restaurant-level Adjusted EBITDA for Pollo Tropical decreased to ~~$17.8 million (which includes the negative impact a $0.4 million increase in rent expense as a result of adopting ASC 842) in the third quarter of 2019 from $19.1~~$10.3 million in the ~~third~~second quarter of ~~2018~~2020 from $21.4 million in the second quarter of 2019 primarily due to the foregoing. Restaurant-level Adjusted EBITDA for Taco Cabana decreased to ~~$6.9 million (which includes the negative impact of a $0.5 million increase in rent expense as a result of adopting ASC 842) in the third quarter of 2019 from $8.0~~$7.3 million in the ~~third~~second quarter of ~~2018~~2020 from $9.5 million in the second quarter of 2019 primarily as a result of the foregoing. For a reconciliation from Adjusted EBITDA to Restaurant-level Adjusted EBITDA, see the heading entitled "Management's Use of Non-GAAP Financial Measures."

Depreciation and Amortization. Depreciation and amortization expense ~~increased~~decreased to ~~$10.2~~$9.6 million in the ~~third~~second quarter of 2020 from $9.8 million in the second quarter of 2019 ~~from $9.7 million in the third quarter of 2018~~ due primarily to ~~increased~~decreased depreciation as a result of impairing closed restaurant assets, partially offset by an increase in depreciation related to new restaurant openings and ongoing reinvestment and enhancements to our restaurants ~~partially offset by a decrease in depreciation as a result~~that have been made since the second quarter of ~~impairing closed restaurant assets.~~2019.

Impairment and Other Lease Charges. Impairment and other lease charges ~~decreased~~increased to ~~$3.3~~$2.3 million in the ~~third~~second quarter of ~~2019~~2020 from ~~$6.4~~$1.8 million in the ~~third~~second quarter of ~~2018.~~2019.

Impairment and other lease charges for the three months ended ~~September 29,~~June 28, 2020, for Pollo Tropical include impairment charges of $1.1 million related primarily to the write-down of assets held for sale to their fair value less costs to sell and other lease charges of $0.9 million primarily related to lease termination charges for restaurant locations we decided not to develop. Impairment and other lease charges for the three months ended June 28, 2020, for Taco Cabana include impairment charges of $0.6 million related primarily to the write-down of assets held for sale to their fair value less costs to sell and a gain of $(0.2) million from a lease termination.

Impairment and other lease charges for the three months ended June 30, 2019, for Pollo Tropical include impairment charges of ~~$0.2~~$0.1 million related primarily to additional impairment of equipment from previously ~~closed~~impaired restaurants. Impairment and other lease charges for the three months ended ~~September 29,~~June 30, 2019, for Taco Cabana include impairment charges of ~~$3.1~~$1.7 million related primarily to assets for ~~five underperforming restaurants that we continue to operate and equipment from previously impaired restaurants.~~

~~Impairment and other lease charges for the three months ended September 30, 2018 for Pollo Tropical included impairment charges of $3.4 million related primarily to impairment of~~ three underperforming restaurants that we continued to operate, two of which closed in January 2020, and ~~a benefit of $(0.1) million in net lease charge recoveries related to certain~~equipment from previously closed restaurants due to adjustments to estimates of future lease costs. Impairment and other lease charges for the three months ended September 30, 2018 for Taco Cabana included impairment charges of $2.4 million related primarily to impairment of five underperforming restaurants that we continued toimpaired restaurants.

operate and other lease charges, net of recoveries, of $0.7 million, due primarily to lease charges related to an office relocation in the third quarter of 2018 and other lease charges, net of recoveries, related to previously closed restaurants due to adjustments to estimates of future lease costs.

Each quarter we assess the potential impairment of any long-lived assets that have experienced a triggering event, including restaurants for which the related trailing ~~twelve month~~twelve-month cash flows are below a certain threshold. We determine if there is impairment at the restaurant level by comparing undiscounted future cash flows from the related long-lived assets, exclusive of operating lease payments, to their respective carrying ~~values.~~values, excluding operating lease liabilities. In determining future cash flows, significant estimates are made by us with respect to future operating results of each restaurant over its remaining lease term, including sales trends, labor rates, commodity costs and other operating cost assumptions. If assets are determined to be impaired, the impairment charge is measured by calculating the amount by which the asset group's carrying amount exceeds its fair value. This process of assessing fair values requires the use of estimates and assumptions, including our ability to sell or reuse the related assets and market conditions, and for right-of-use lease assets, current market lease rent and discount rates, which are subject to a high degree of judgment. If these assumptions change in the future, we may be required to record impairment charges for these assets and these charges could be material. Due to the uncertainty associated with the unprecedented nature of the COVID-19 pandemic and the impact it will continue to have on restaurant operations and future cash flows, it is reasonably possible that the estimates of future cash flows used in impairment assessments will change in the near term and the effect of the change could be material. Our current estimates assume that operating restrictions, regulations and directives for restaurants and other changes related to COVID-19 will continue to have a significant impact for the remainder of the year with the greatest impact in the near term.

For ~~one~~four Pollo Tropical ~~restaurant~~restaurants and ~~nine~~one Taco Cabana ~~restaurants~~restaurant with combined carrying values (excluding right-of-use lease assets) of ~~$2.2~~$1.3 million and ~~$2.2~~$0.4 million, respectively, projected cash flows are not substantially in excess of their carrying values. In addition, one ~~Pollo Tropical restaurant and one~~ Taco Cabana restaurant with a carrying ~~values~~value (excluding right-of-use lease assets) of ~~$1.8~~$0.9 million ~~and $2.0 million, respectively, have~~has initial sales volumes lower than expected but dodoes not have significant operating history to form a good basis for future projections. If the performance of ~~these restaurants~~this restaurant does not improve as projected, an impairment charge could be recognized in future periods, and such charge could be material.

Goodwill Impairment. Goodwill impairment was ~~$21.4~~$46.5 million for the ~~third~~second quarter of 2019 and consisted of a non-cash impairment charge to write down the value of goodwill for the Taco Cabana reporting unit.

Closed Restaurant Rent Expense, Net of Sublease Income. Closed restaurant rent expense, net of sublease income was $1.8 million for the ~~third~~second quarter of ~~2019~~2020 and consisted of closed restaurant rent and ancillary lease costs of ~~$1.6~~$1.7 million and ~~$0.3~~$1.3 million net of sublease income of ~~$1.0~~$1.1 million and ~~$0.2~~$0.1 million for Pollo Tropical and Taco Cabana, respectively. ~~Prior~~Closed restaurant rent expense, net of sublease income was $1.3 million for the second quarter of 2019 and consisted of closed restaurant rent and ancillary lease costs of $1.8 million and $0.4 million net of sublease income of $0.8 million and $0.1 million for Pollo Tropical and Taco Cabana, respectively. Our sublessees are in the restaurant or retail industry and are also experiencing reduced sales volumes and/or temporary closures due to the ~~adoption~~COVID-19 pandemic. Our sublease income in future periods may be less than it has been historically if our tenants are unable to pay in a timely manner or at all. In addition, for our subleases for which collectability has historically been determined to be probable, we will be required to reverse sublease income receivables we have recognized on a straight-line basis and begin recording sublease income as payments are collected if our assessment of ~~ASC 842,~~collectability changes and we ~~recorded closed restaurant reserves representing future minimum lease payments and ancillary costs from the date of the restaurant closure to the end of~~determine that collectability over the remaining lease term ~~net of estimated sublease recoveries when a restaurant closed~~is no longer probable. Straight-line rent receivables and recorded subsequent changes in the assumptions related to the sublease income to expense in the period in which the assumptions changed. The subsequent rent payments were recorded as a reduction to the closed restaurant reserves, with no rent expense being recorded in the period. See "New Lease Accounting Standard" under "Recent Events Affecting our Results of Operations."deferred initial direct costs totaled $1.1 million at June 28, 2020.

Other Expense (Income), Net. Other expense, net was ~~$0.1~~$0.8 million for the ~~third~~second quarter of ~~2019~~2020 and primarily consisted of $0.1 million for the write-off of site development costs. Other expense, net was less than $0.1 million for the third quarter of 2018 and primarily consisted of $0.3 million in insurance recoveries related to Hurricane Irma offset by the write-off of site development costs of ~~$0.1~~$0.6 million and costs for the removal, transfer, and storage of equipment from closed restaurants and other closure related costs of $0.2 million. Other expense, net was $0.2 million for the second quarter of 2019 and primarily consisted of costs for the removal, transfer, and storage of equipment from closed restaurants.

Interest Expense. Interest expense ~~decreased~~increased to ~~$0.8~~$1.2 million in the ~~third~~second quarter of 2020 compared to $1.0 million in the second quarter of 2019 ~~compared to $0.9 million in the third quarter of 2018~~ due primarily to a ~~lower~~higher borrowing level under our senior credit facility ~~and a~~partially offset by lower ~~applicable margin on outstanding borrowings.~~interest rates.

~~Benefit from~~Provision for (Benefit from) Income Taxes. The effective tax rate was ~~11.7%~~17.3% and ~~172.0%~~(1.5)% for the ~~third~~second quarter of 2020 and 2019, ~~and 2018,~~ respectively. The benefit from income taxes for the second quarter of 2020 was derived using the actual effective tax rate for the year to date period. The provision for income taxes for the ~~third~~second quarter of 2019 was derived using an estimated annual effective tax rate of ~~27.2%~~24.6%, which excludes the discrete impact of tax benefits of $(2.1) million from tax deductible goodwill impairment charges and $(0.4) million from interest on an income tax refund and a tax deficiency from the vesting of restricted shares of $0.2 million. The benefit from income taxes for the third quarter of 2018 was derived using an estimated annual effective tax rate of 23.4%, which excluded the discrete impact of a tax deficiency from the vesting of restricted shares of $0.2 million and ~~an adjustment resulting~~a tax benefit from ~~changes in our 2017 federal~~interest on an income tax ~~return from~~refund of $(0.4) million. We did not recognize a tax benefit for the ~~amounts recorded as of December 31, 2017 of $4.1 million, which includes~~goodwill impairment charge because the ~~$3.9 million impact of revaluing changes in our deferred tax assets.~~related goodwill was not deductible.

Net Income (Loss). As a result of the foregoing, we had a net loss of ~~$22.2~~$8.3 million in the ~~third~~second quarter of ~~2019~~2020 compared to a net ~~income~~loss of ~~$2.0~~$43.4 million in the ~~third~~second quarter of ~~2018.~~2019.

~~Nine~~Six Months Ended ~~September 29, 2019~~June 28, 2020 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019

The following table sets forth, for the ~~nine~~six months ended ~~September 29,~~June 28, 2020 and June 30, 2019, ~~and September 30, 2018,~~ selected consolidated operating results as a percentage of consolidated restaurant sales and select segment operating results as a percentage of applicable segment restaurant sales:


	Nine Months Ended												Six Months Ended
	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018		June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
	Pollo Tropical				Taco Cabana				Consolidated				Pollo Tropical				Taco Cabana				Consolidated
Restaurant sales:
Pollo Tropical									54.5	%	54.6	%									55.7	%	54.7	%
Taco Cabana									45.5	%	45.4	%									44.3	%	45.3	%
Consolidated restaurant sales									100.0	%	100.0	%									100.0	%	100.0	%
Costs and expenses:
Cost of sales	31.6	%	33.1	%	31.0	%	30.8	%	31.3	%	32.0	%	32.2	%	31.4	%	30.4	%	30.6	%	31.4	%	31.0	%
Restaurant wages and related expenses	23.3	%	23.2	%	31.6	%	32.5	%	27.1	%	27.4	%	24.3	%	23.1	%	32.1	%	31.8	%	27.7	%	27.0	%
Restaurant rent expense	6.0	%	4.6	%	8.4	%	5.9	%	7.1	%	5.2	%	7.6	%	5.9	%	9.5	%	8.4	%	8.5	%	7.0	%
Other restaurant operating expenses	13.5	%	13.5	%	14.0	%	15.8	%	13.7	%	14.5	%	15.5	%	13.0	%	14.7	%	13.4	%	15.1	%	13.2	%
Advertising expense	3.4	%	3.5	%	3.7	%	3.5	%	3.6	%	3.5	%	3.1	%	3.4	%	2.7	%	3.4	%	3.0	%	3.4	%
Pre-opening costs	0.1	%	0.2	%	0.2	%	0.3	%	0.2	%	0.3	%	—	%	0.1	%	0.1	%	0.4	%	—	%	0.2	%

Total revenues decreased ~~3.7%~~20.4% to ~~$501.5~~$268.6 million in the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 from ~~$521.0~~$337.2 million in the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. Restaurant sales decreased ~~3.8%~~20.3% to ~~$499.5~~$267.6 million in the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 from ~~$519.0~~$335.9 million in the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019.

The following table presents the primary drivers of the decreases in restaurant sales for both Pollo Tropical and Taco Cabana for the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 (in millions):


Pollo Tropical:
Decrease in comparable restaurant sales	$	(6.8	)	$	(35.0	)
Decrease in sales related to closed restaurants, net of new restaurants	(4.7		)
Incremental sales related to new restaurants, net of closed restaurants				0.4
Total decrease	$	(11.5	)	$	(34.6	)

Taco Cabana:
Decrease in comparable restaurant sales	$	(6.2	)	$	(22.7	)
Decrease in sales related to closed restaurants, net of new restaurants	(1.8		)	(10.9		)
Total decrease	$	(8.0	)	$	(33.6	)

Comparable restaurant sales for Pollo Tropical restaurants decreased ~~2.5%~~19.5% in the ~~nine~~six months ended ~~September 29, 2019.~~June 28, 2020. Comparable restaurant sales for Taco Cabana restaurants decreased ~~2.8%~~16.4% in the ~~nine~~six months ended ~~September 29, 2019.~~June 28, 2020.

For Pollo Tropical, a decrease in comparable restaurant transactions of ~~3.3%~~23.4% was partially offset by an increase in ~~average check~~the net impact of ~~0.8%~~pricing and product/channel mix of 3.9% in the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The increase in ~~average check~~pricing and product/channel mix was driven primarily by increases in delivery and drive-thru average check and sales channel penetration, and menu price increases of ~~2.0%, partially offset by discounted pricing for Pollo Time.~~0.2%. As a result of new restaurant openings, sales cannibalization of existing restaurants negatively impacted comparable restaurant sales for Pollo Tropical by ~~1.0%~~0.3% in the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018. In addition, we estimate that Hurricane Dorian negatively impacted comparable restaurant sales for Pollo Tropical by approximately 0.5%.~~2019.

For Taco Cabana, a decrease in comparable restaurant transactions of ~~5.3%~~22.1% was partially offset by an increase in ~~average check~~net impact of ~~2.5%~~product/channel mix of 5.7% in the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The increase in ~~average check~~product/channel mix was driven primarily by ~~menu price~~ increases ~~of 2.4%~~in drive-thru and ~~the introduction of higher priced shareables~~delivery sales channel penetration and growth in ~~2019.~~average check for drive-thru compared to last year due in part to an increase in transactions that include alcohol.

Franchise revenues ~~remained flat~~decreased by $0.4 million to $0.9 million in the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019 due to lower sales at franchised restaurants in 2020 primarily as a result of COVID-19.

The following tables present the primary drivers of the changes in the components of restaurant operating margins for Pollo Tropical and Taco Cabana for the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. All percentages are stated as a percentage of applicable segment restaurant sales.



Pollo Tropical:
Cost of sales:
~~Lower~~Sales mix	0.6	%
Higher commodity costs	~~(1.7~~0.4	)%
~~Menu price increases~~	~~(0.6~~	)%
Higher promotions and discounts	0.4	%
~~Sales mix~~Higher packaging costs	0.2	%
Operating ~~inefficiency~~efficiency	~~0.1~~(0.7	)%
~~Other~~Menu price increases	(0.1	)%
Net ~~decrease~~increase in cost of sales as a percentage of restaurant sales	~~(1.5~~0.8	)%

Restaurant wages and related expenses:
Higher labor costs ~~for comparable restaurants~~due to COVID-19⁽¹⁾	~~0.7~~0.9	%
~~Lower~~Impact of lower sales on labor costs ~~due to restaurant closures, net~~	0.2	%
Higher workers' compensation costs	0.2	%
Impact of ~~new restaurants~~lower sales on payroll taxes	0.1	%
Lower incentive bonus	(~~0.5~~0.2	)%
~~Lower incentive bonus~~	~~(0.1~~	)%
Net increase in restaurant wages and related costs as a percentage of restaurant sales	~~0.1~~1.2	%

Other operating expenses:
~~Real estate tax classification~~⁽²⁾ Higher delivery fees	~~(0.9~~	)%
~~Contracted cleaning services~~	~~0.6~~1.4	%
~~Higher delivery fees~~Impact of lower sales on utilities cost	0.3	%
Impact of lower sales on operating supplies	0.2	%
Higher insurance costs including the impact of lower sales	0.2	%
Higher linen and uniform expense including COVID-19 masks and the impact of lower sales	0.1	%
Contracted cleaning services	0.1	%
Other	0.2	%
Net ~~change~~increase in other restaurant operating expenses as a percentage of restaurant sales	—2.5	%

Advertising expense:
~~Decreased~~Reduced advertising	(~~0.1~~0.3	)%
Net decrease in advertising expense as a percentage of restaurant sales	(~~0.1~~0.3	)%

Pre-opening costs:
Decrease in the number of restaurant openings	(0.1	)%
Net decrease in pre-opening costs as a percentage of restaurant sales	(0.1	)%


⁽¹⁾	Primarily includes the impact of COVID-19 related special incentive pay, which is partially offset (0.2%) by lower incentive bonus resulting from the special incentive pay.

⁽¹⁾~~Includes the impact of higher wage rates and overtime due to labor shortages.~~

⁽²⁾~~Due to the adoption of ASC 842, real estate taxes are included in rent expense in 2019 and in other operating expenses in 2018.~~



Taco Cabana:
Cost of sales:
~~Menu offering improvement and higher~~Lower commodity costs	~~1.3~~(1.4	)%
Sales mix	0.6	%
~~Higher promotions~~Lower rebates and discounts	~~0.4~~0.2	%
~~Menu price increases~~Operating inefficiency	~~(0.8~~	)%
~~Sales mix~~	~~(0.6~~	)%
~~Operating efficiency~~	(0.2	)%
~~Other~~	~~0.1~~	%
Higher liquor tax	0.2	%
Net ~~increase~~decrease in cost of sales as a percentage of restaurant sales	(0.2	)%

Restaurant wages and related expenses:
~~Lower~~Higher labor costs due to COVID-19⁽¹⁾	1.3	%
Lower labor costs due to labor efficiencies	(~~0.4~~0.6	)%
Lower incentive bonus	(0.3	)%
Lower ~~medical benefit~~workers' compensation costs	(0.1	)%
~~Other~~	~~(0.1~~	)%
Net ~~decrease~~increase in restaurant wages and related costs as a percentage of restaurant sales	~~(0.9~~0.3	)%

Other operating expenses:
~~Real estate tax classification~~⁽²⁾ Higher delivery fees	~~(1.6~~0.8	)%
~~Lower utility costs~~Impact of lower sales on operating supplies	~~(0.2~~0.3	)%
~~Lower security costs~~	~~(0.2~~	)%
Higher ~~delivery fees~~linen and uniform expense including COVID-19 masks and the impact of lower sales	0.2	%
Net ~~decrease~~increase in other restaurant operating expenses as a percentage of restaurant sales	~~(1.8~~1.3	)%

Advertising expense:
~~Increased~~Reduced advertising	~~0.2~~(0.7	)%
Net ~~increase~~decrease in advertising expense as a percentage of restaurant sales	~~0.2~~(0.7	)%

Pre-opening costs:
~~Timing~~Decrease in the number of restaurant openings	(~~0.1~~0.3	)%
Net decrease in pre-opening costs as a percentage of restaurant sales	(~~0.1~~0.3	)%

⁽¹⁾~~Improved staffing utilization, partially offset by higher wage rates and overtime due to labor shortages.~~

⁽²⁾ ~~Due to the adoption of ASC 842, real estate taxes are included in rent expense in 2019 and in other operating expenses in 2018.~~


⁽¹⁾	Primarily includes the impact of COVID-19 related special incentive pay, which is partially offset (0.2%) by lower incentive bonus resulting from the special incentive pay.

Consolidated Restaurant Rent Expense. Beginning December 31, 2018, restaurant rent expense includes base rent, contingent rent and common area maintenance and property taxes related to our leases characterized as operating leases. For periods prior to the adoption of ASC 842 on December 31, 2018, restaurant rent expense included base rent and contingent rent on our leases characterized as operating leases, reduced by amortization of gains on sale-leaseback transactions. Restaurant rent expense, as a percentage of total restaurant sales, increased to ~~7.1%~~8.5% in the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 from ~~5.2%~~7.0% in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 due primarily to a $2.5 million increase in rent expense as a result of no longer amortizing gains on sale-leaseback transactions, the inclusion of property taxes and common area maintenance costs related to our leases characterized as operating leases, and the impact of lower comparable restaurant sales.

Consolidated General and Administrative Expenses. General and administrative expenses were ~~$42.4~~$26.7 million for the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 and ~~$41.0~~$28.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and, as a percentage of total revenues, general and administrative expenses increased to 9.9% in the six months ended June 28, 2020 compared to 8.5% in the ~~nine~~six months ended ~~September 29,~~June 30, 2019 ~~compared to 7.9% in the nine months ended September 30, 2018~~ due primarily to the impact of lower total revenues ~~on higher general~~partially offset by lower management support costs primarily as a result of headcount reductions and ~~administrative expenses in~~lower incentive compensation costs for the ~~nine~~six months ended ~~September 29, 2019 including investments in off-premise support in 2019.~~June 28, 2020. General and administrative expense for the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 also included ~~$1.0~~$0.9 million related to ~~restructuring~~severance costs ~~due~~associated with positions eliminated in response to ~~eliminated or relocated positions, $0.2~~the COVID-19 pandemic, $0.4 million related to digital and brand repositioning costs and ~~$0.4~~$0.1 million related to search fees for senior executive positions. General and administrative expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~

2019 included ~~the benefit of fee reductions and final insurance recoveries totaling $0.6~~$1.0 million related to ~~2017 shareholder activism costs and reductions to final settlement amounts related to a litigation matter of $0.2 million, partially offset by $0.5 million in Strategic Renewal Plan~~ restructuring costs ~~and retention bonuses, $0.4 million in costs related~~due to ~~discontinuing certain services and $0.8 million related to system implementation and project-oriented advisory services.~~eliminated or relocated positions.

Adjusted EBITDA. Adjusted EBITDA for Pollo Tropical decreased to ~~$39.9 million (which includes the negative impact of a $1.1 million increase in rent expense as a result of adopting ASC 842) in the nine months ended September 29, 2019 from $42.5~~$13.8 million in the ~~nine~~six months ended ~~September~~June 28, 2020 from $29.0 million in the six months ended June 30, ~~2018~~2019 due primarily to the impact of lower restaurant sales, including the impact of ~~Hurricane Dorian, and~~COVID-19, higher ~~rent expense, contracted cleaning services,~~ delivery fees, ~~and general and administrative expenses, partially offset by lower cost of sales~~higher labor costs as a percentage of restaurant ~~sales.~~sales, additional costs related to the COVID-19 pandemic and sales mix, partially offset by lower advertising costs and general and administrative expenses. Adjusted EBITDA for Taco Cabana decreased to ~~$8.2 million (which includes the negative impact of a $1.4 million increase in rent expense as a result of adopting ASC 842) in the nine months ended September 29, 2019 from $9.7~~$1.8 million in the ~~nine~~six months ended ~~September~~June 28, 2020 from $7.0 million in the six months ended June 30, ~~2018~~2019 due primarily to the impact of lower restaurant sales, including the impact of COVID-19, higher delivery

fees and ~~higher rent expense~~additional costs related to the COVID-19 pandemic, partially offset by lower commodity costs, advertising costs, and general and administrative ~~expenses, partially offset by lower restaurant wages and related expenses as a percentage of restaurant sales.~~expenses. Consolidated Adjusted EBITDA decreased to ~~$48.1~~$15.5 million in the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 from ~~$52.2~~$36.0 million in the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019.

Restaurant-level Adjusted EBITDA. Restaurant-level Adjusted EBITDA for Pollo Tropical decreased to ~~$60.4 million (which includes the negative impact of a $1.1 million increase in rent expense as a result of adopting ASC 842) in the nine months ended September 29, 2019 from $62.9~~$25.8 million in the ~~nine~~six months ended ~~September~~June 28, 2020 from $42.6 million in the six months ended June 30, ~~2018~~2019 due primarily to the foregoing. Restaurant-level Adjusted EBITDA for Taco Cabana decreased to ~~$25.9 million (which includes the negative impact of a $1.4 million increase in rent expense as a result of adopting ASC 842) in the nine months ended September 29, 2019 from $27.4~~$12.6 million in the ~~nine~~six months ended ~~September~~June 28, 2020 from $18.9 million in the six months ended June 30, ~~2018~~2019 as a result of the foregoing. For a reconciliation from Adjusted EBITDA to Restaurant-level Adjusted EBITDA, see the heading entitled "Management's Use of Non-GAAP Financial Measures."

Depreciation and Amortization. Depreciation and amortization expense ~~increased~~decreased to ~~$29.5~~$19.0 million in the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 from ~~$27.9~~$19.4 million in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 due primarily to ~~increased~~decreased depreciation as a result of impairing closed restaurant assets, partially offset by an increase in depreciation related to new restaurant openings and ongoing reinvestment and enhancements to our restaurants ~~partially offset by a decrease in depreciation as a result~~that have been made since the second quarter of ~~impairing closed restaurant assets.~~2019.

Impairment and Other Lease Charges. Impairment and other lease charges ~~decreased~~increased to ~~$4.7 million in the nine months ended September 29, 2019 from~~ $6.5 million in the ~~nine~~six months ended ~~September~~June 28, 2020 from $1.4 million in the six months ended June 30, ~~2018.~~2019.

Impairment and other lease charges for the ~~nine~~six months ended ~~September 29,~~June 28, 2020 for Pollo Tropical include impairment charges of $4.8 million related primarily to the impairment of assets from three underperforming Pollo Tropical restaurants that we continue to operate, the write-down of assets held for sale to their fair value less costs to sell, and lease termination charges of $0.9 million for restaurant locations we decided not to develop. Impairment and other lease charges for the six months ended June 28, 2020 for Taco Cabana include impairment charges of $1.1 million related primarily to the write-down of assets held for sale to their fair value less costs to sell and the impairment of assets for two underperforming Taco Cabana restaurants that we continue to operate, and a gain of $(0.2) million from a lease termination.

Impairment and other lease charges for the six months ended June 30, 2019 for Pollo Tropical include impairment charges of ~~$0.6~~$0.4 million related primarily to additional impairment of equipment from previously closed restaurants and a lease charge recoveries benefit related to previously closed restaurant lease terminations of $(0.8) million. Impairment and other lease charges for the nine months ended September 29, 2019 for Taco Cabana include impairment charges of $4.9 million related primarily to impairment of assets for eight underperforming restaurants that we continue to operate, equipment from previously impaired restaurants and a lease charge recoveries benefit related to previously closed restaurant lease terminations of ~~$(0.1)~~$(0.7) million.

Impairment and other lease charges for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 for ~~Pollo Tropical~~Taco Cabana include impairment charges of ~~$3.6~~$1.7 million related primarily to impairment of assets for three underperforming restaurants that we continued to operate and ~~a benefit of $(0.1) million in net lease charge recoveries related to certain~~equipment from previously closed restaurants due to adjustments to estimates of future lease costs. Impairment and other lease charges for the nine months ended September 30, 2018 for Taco Cabana include impairment charges of $2.6 million related primarily to impairment of five underperforming restaurants that we continued to operate, and other lease charges, net of recoveries, of $0.5 million, due primarily to lease charges related to an office relocation in the third quarter of 2018 and other lease charges, net of recoveries, related to previously closed restaurants due to adjustments to estimates of future lease costs.impaired restaurants.

Goodwill Impairment. Goodwill impairment was ~~$67.9~~$46.5 million for the ~~nine~~six months ended ~~September 29,~~June 30, 2019 and consisted of a non-cash impairment ~~charges~~charge to write down the value of goodwill for the Taco Cabana reporting unit.

Closed Restaurant Rent Expense, Net of Sublease Income. Closed restaurant rent expense, net of sublease income was $3.5 million for the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 and consisted of closed restaurant rent and ancillary lease costs of ~~$5.1~~$3.5 million and ~~$1.1~~$2.4 million net of sublease income of ~~$2.4~~$2.2 million and ~~$0.4~~$0.2 million for Pollo Tropical and Taco Cabana, respectively. ~~Prior to~~Closed restaurant rent expense, net of sublease income was $2.8 million for the ~~adoption~~six months ended June 30, 2019 and consisted of ~~ASC 842, we recorded~~ closed restaurant ~~reserves representing future minimum lease payments~~rent and ancillary lease costs ~~from the date~~ of ~~the restaurant closure to the end of the remaining lease term~~$3.6 million and $0.8 million net of ~~estimated sublease recoveries when a restaurant closed and recorded subsequent changes in the assumptions related to the~~ sublease income to expense in the period in which the assumptions changed. The subsequent rent payments were recorded as a reduction to the closed restaurant reserves, with no rent expense being recorded in the period. See "New Lease Accounting Standard" under "Recent Events Affecting our Results of ~~Operations."~~$1.4 million and $0.2 million for Pollo Tropical and Taco Cabana, respectively.

Other Expense (Income), Net. Other expense, net was ~~$0.9~~$1.7 million for the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 and primarily consisted of ~~$0.7~~$1.1 million in costs for the removal, transfer, and storage of equipment from closed restaurants and ~~$0.1~~$0.6 million for the write-off of site development costs. Other ~~income,~~expense, net ~~of $3.1~~was $0.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and primarily consisted of ~~$3.1~~$0.6 million in insurance recoveries related to the Hurricanes and total gains of $1.2 million on the sales of three restaurant properties, partially offset by the write-off of site development costs of $0.5 million and costs for the removal, transfer, and storage of equipment from closed ~~restaurants of $0.7 million.~~restaurants.

Interest Expense. Interest expense remained flat for the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019 due to a higher borrowing level under our senior credit facility being offset by lower interest rates.

~~Benefit from~~Provision for (Benefit from) Income Taxes. The effective tax rate was ~~2.1% for the nine months ended September 29, 2019~~23.3% and ~~(1.6)~~(4.0)% for the ~~nine~~six months ended ~~September~~June 28, 2020 and June 30, ~~2018.~~2019, respectively. The ~~provision for~~benefit from income taxes for the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 was derived using ~~an estimated annual~~the actual effective tax rate for the year to date period, which includes a benefit of ~~27.2%, which excludes~~$1.8 million related to the ~~discrete impact~~carryback of ~~tax benefits~~net operating losses as a result of ~~$(2.1) million from tax deductible goodwill impairment charges~~the Coronavirus Aid, Relief, and ~~$(0.4) million from interest on an income tax refund~~Economic Security Act (the "CARES Act") and a tax deficiency from the vesting of restricted shares of ~~$0.2~~$0.6 million. The ~~benefit from~~provision for income taxes for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was derived using an estimated effective annual income tax rate of ~~23.4%~~24.6%, which excludes the discrete impact of a tax deficiency from the vesting of restricted shares of $0.2 million and ~~an adjustment resulting~~a tax benefit from ~~changes in our 2017 federal~~interest on an income tax ~~return~~refund of $(0.4) million. We did not recognize a tax benefit for the goodwill impairment charge because the related goodwill was not deductible.

The CARES Act includes provisions that eliminate the 80% of taxable income limitation for certain net operating loss carryforward deductions and allow net operating losses arising in 2018, 2019, and 2020 to be carried back for up to five years. As

a result of carrying net operating losses from 2018 and 2019 back to years with a higher federal corporate income tax rate, we recorded an incremental tax benefit of $1.8 million during the ~~amounts recorded as~~first quarter of ~~December 31, 2017 of $4.1 million, which includes the $3.9 million impact of revaluing changes in our deferred tax assets.~~2020.

Net Income (Loss). As a result of the foregoing, we had a net loss of ~~$63.3 million for the nine months ended September 29, 2019 compared to net income of~~ $15.7 million for the ~~nine~~six months ended ~~September~~June 28, 2020 compared to a net loss of $41.2 million for the six months ended June 30, ~~2018.~~2019.

Liquidity and Capital Resources

We do not have significant receivables or inventory and receive trade credit based upon negotiated terms in purchasing food products and other supplies. We are able to operate with a substantial working capital deficit because:

restaurant operations are primarily conducted on a cash basis;

rapid turnover results in a limited investment in inventories; and

cash from sales is usually received before related liabilities for food, supplies and payroll become due.

Capital expenditures and payments related to our lease obligations represent significant liquidity requirements for us. We believe cash generated from our operations and the sale of owned property and availability of borrowings under our senior credit facility will provide sufficient cash availability to cover our anticipated working capital needs, capital expenditures and debt service requirements for the next twelve months. As a result of the effect of COVID-19, we expect the mix of our sources of liquidity to shift from cash generated from our operations to other sources of liquidity for the next twelve months.

On July 10, 2020, we executed an amendment to our senior credit facility that includes adjustments to our covenants that are more reflective of current sales and profit trends. For the remainder of 2020, the only applicable financial covenant that requires compliance will be a minimum liquidity target. During the second quarter we borrowed all available funds under our senior credit facility. We repaid $30.0 million on July 10, 2020 and an additional $62.5 million through July 31, 2020. On July 31, 2020, there were $54.0 million in outstanding revolving credit borrowings under our amended senior credit facility. See Note 12 to our unaudited condensed consolidated financial statements and "Amended Senior Credit Facility" below for a further discussion.

Operating Activities. Net cash provided by operating activities in the first ~~nine~~six months of 2020 and 2019 ~~and 2018~~ was ~~$51.0~~$29.0 million and ~~$44.3~~$39.5 million, respectively. The ~~increase~~decrease in net cash provided by operating activities in the ~~nine~~six months ended ~~September 29, 2019~~June 28, 2020 was primarily driven ~~by the receipt of a tax refund, partially offset~~ by a decrease in Adjusted EBITDA, ~~and~~partially offset by the timing of ~~payments. We accelerated~~payments including the ~~timing~~impact of ~~certain payments at the end of the third quarter of 2019 due to the transition to a new financial system as of September 30, 2019.~~vendor and landlord payment term renegotiations.

Investing Activities. Net cash used in investing activities in the first ~~nine~~six months of 2020 and 2019 ~~and 2018~~ was ~~$32.3~~$8.7 million and ~~$34.4~~$19.9 million, respectively. Capital expenditures are the largest component of our investing activities and include: (1) new restaurant development, which may include the purchase of real estate; (2) restaurant remodeling/reimaging, which includes the renovation or rebuilding of the interior and exterior of our existing restaurants; (3) other restaurant capital expenditures, which include capital maintenance expenditures for the ongoing reinvestment and enhancement of our restaurants; and (4) corporate and restaurant information systems.

The following table sets forth our capital expenditures for the periods presented (dollars in thousands).


	Pollo Tropical		Taco Cabana		Other		Consolidated		Pollo Tropical		Taco Cabana		Other			Consolidated
Nine Months Ended September 29, 2019:
Six Months Ended June 28, 2020:
New restaurant development	$	6,822	$	3,859	$	—	$	10,681	$	986	$	854	$	—		$	1,840
Restaurant remodeling	182		186		—		368		357		730		—			1,087
Other restaurant capital expenditures⁽¹⁾	8,626		7,219		—		15,845		2,019		1,722		—			3,741
Corporate and restaurant information systems	2,565		3,718		896		7,179		682		354		999			2,035
Total capital expenditures	$	18,195	$	14,982	$	896	$	34,073	$	4,044	$	3,660	$	999		$	8,703
Number of new restaurant openings	2		3				5		—		1					1
Nine Months Ended September 30, 2018:
Six Months Ended June 30, 2019:
New restaurant development	$	9,439	$	8,458	$	—	$	17,897	$	4,546	$	3,289	$	—		$	7,835
Restaurant remodeling	18		216		—		234		268		—		—			268
Other restaurant capital expenditures⁽¹⁾	6,029		9,507		—		15,536		5,444		4,492		—			9,936
Corporate and restaurant information systems	2,170		3,219		867		6,256		1,535		2,186		(89		)	3,632
Total capital expenditures	$	17,656	$	21,400	$	867	$	39,923	$	11,793	$	9,967	$	(89	)	$	21,671
Number of new restaurant openings	4		7				11		1		3					4

⁽¹⁾Excludes restaurant repair and maintenance expenses included in other restaurant operating expenses in our consolidated financial statements. For the nine months ended September 29, 2019 and September 30, 2018, total restaurant repair and maintenance expenses were approximately $16.8 million and $17.7 million, respectively.


⁽¹⁾	Excludes restaurant repair and maintenance expenses included in other restaurant operating expenses in our unaudited condensed consolidated financial statements. For the six months ended June 28, 2020 and June 30, 2019, total restaurant repair and maintenance expenses were approximately $8.3 million and $10.8 million, respectively.

Cash used in investing activities in the first ~~nine~~six months of 2019 included net proceeds from the sale of one restaurant property of $1.8 million. Cash used in investing activities in the first nine months of 2018 included net proceeds from the sales of three restaurant properties of $4.7 million. In addition, in the first nine months of 2018, we received property damage insurance proceeds totaling $0.8 million related to a closed Taco Cabana restaurant that suffered flood damages due to Hurricane Harvey and a Taco Cabana restaurant that was temporarily closed due to a fire.

Total capital expenditures in 2019 are expected to be in the lower half of the previous $45.0 million to $55.0 million range, including $11.0 million to $13.0 million for the development of new restaurants.

Total capital expenditures in 2020 are expected to be approximately $5.0 million to $10.0 million lower than the current year due primarily to lower levels of new equipment and facility enhancements and fewer new Company-owned restaurant openings.will not exceed $22.0 million.

Financing Activities. Net cash provided by financing activities in the first six months of 2020 was $67.7 million and included net revolving credit borrowings under our senior credit facility of $71.5 million, partially offset by $3.7 million in payments to repurchase our common stock, as well as borrowings and subsequent repayment of funds pursuant to the Paycheck Protection Program under the CARES Act. Net cash used in financing activities in the first ~~nine~~six months of 2019 ~~was $20.5 million and~~ included net revolving credit borrowing repayments under our senior credit facility of ~~$9.0~~$17.0 million combined with $11.4 million in payments to repurchase our common stock. Net revolving credit borrowing repayments included a $5.0 million short-term borrowing related to the acceleration of certain payments due to the transition to a new financial system as of September 30, 2019. Net cash used in financing activities in the first nine months of 2018 included net revolving credit borrowing repayments under our senior credit facility of $5.0 million combined with $2.5$2.2 million in payments to repurchase our common stock.

Amended Senior Credit Facility. ~~Our~~On July 10, 2020, we entered into the amended senior credit facility. The amended senior credit facility reduced aggregate maximum commitments available for revolving credit borrowings (including standby letters of credit) under the amended senior credit facility (the "revolving commitment") by $30.0 million to $120.0 million on July 10, 2020. The amended senior credit facility further reduces the revolving commitment by (i) $15.0 million to $105.0 million on January 3, 2021 and (ii) $10.0 million to $95.0 million on April 4, 2021.

The amended senior credit facility provides that Fiesta is not required to be in compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio covenants (each as amended and defined in the amended senior credit facility agreement) under the amended senior credit facility from July 10, 2020 through April 3, 2021. Fiesta is required to be in compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio beginning with the fiscal quarter ending April 4, 2021 (the first quarter of 2021). After April 3, 2021, we will be permitted to exercise equity cures with respect to compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio provided that, among other items, (i) the equity raised is from the issuance of common stock of Fiesta, (ii) not less than 50% of the net proceeds received by us from the issuance of Fiesta common stock are immediately used to prepay outstanding revolving credit borrowings under the amended senior credit facility which will result in a corresponding reduction of the revolving commitment by such amount, (iii) the amount of the equity cure is not more than $5.0 million in any fiscal quarter, and (iv) the aggregate amount of all equity cures do not exceed $15.0 million. The amended senior secured credit facility also provides that Fiesta must maintain minimum liquidity (as defined in the amended senior credit facility, generally unrestricted cash plus available borrowings under the amended senior credit facility) of (i) $40.0 million through September 27, 2020, (ii) $30.0 million from September 28, 2020 through January 3, 2021 and (iii) $25.0 million on January 4, 2021 and thereafter (the "Liquidity Covenant").

Borrowings under the amended senior credit facility will bear interest at a rate per annum, at our option, of (a) the Alternate Base Rate (as defined in the amended senior credit facility) plus the Applicable Rate (as defined in the amended senior credit

facility) of 4.0% with a minimum Alternate Base Rate of 2.0% or (b) the Adjusted LIBOR Rate (as defined in the amended senior credit facility) plus the Applicable Rate of 5.0% with a minimum Adjusted LIBOR Rate of 1.0%. Pursuant to the amended senior credit facility, we will be subject to a commitment fee of 0.50% per annum on the daily amount of the unused portion of the facility.

The outstanding borrowings under the amended senior credit facility are prepayable without penalty (other than customary breakage costs). The amended senior credit facility provides that for any of the following by Fiesta, (i) the sale of certain specified real property, including pursuant to sale-leaseback transactions, (ii) the issuance of equity of Fiesta (other than under our 2012 Stock Incentive Plan, subject to the restrictions set forth in the amended senior credit facility), (iii) the incurrence of certain indebtedness and (iv) the receipt of insurance proceeds (each a "prepayment event"), (a) if such prepayment event occurs prior to April 4, 2021, 100% of the net proceeds of such prepayment event received by us in each case must be used to reduce the outstanding revolving credit borrowings under the amended senior credit facility which will result in a corresponding reduction of the revolving commitment and (b) beginning April 4, 2021, (1) 50% of the net proceeds received by us pursuant to the issuance of equity of Fiesta described above and the sale of real property pursuant to a sale-leaseback transaction in each case must be used to reduce the outstanding revolving credit borrowings under the amended senior credit facility which will result in a corresponding reduction of the revolving commitment and (2) 100% of the net proceeds received by us pursuant to prepayment event other those identified in (1) above, in each case must be used to reduce the outstanding revolving credit borrowings under the amended senior credit facility which will result in a corresponding reduction of the revolving commitment. The amended senior credit facility further provides that we must prepay outstanding revolving credit borrowings if the outstanding revolving credit borrowings exceed $75.0 million and excess cash (defined in the amended senior credit facility) of Fiesta exceeds $20.0 million.

The amended senior credit facility contains certain covenants, including, without limitation, those limiting Fiesta's ability to, among other things, incur indebtedness, incur liens, sell or acquire assets or businesses, change the character of its business in any material respects, engage in transactions with related parties, make certain investments, make certain restricted payments or pay dividends, including, without limitation, (i) that capital expenditures by Fiesta cannot exceed an aggregate of $22.0 million for each of the fiscal years ending 2020 and 2021 and cannot exceed an aggregate of $25.0 million for the fiscal year ending 2022 (the "Capital Expenditures Covenant") and (ii) limiting the construction or development of new restaurants to one Pollo Tropical prototype restaurant in 2021 and three Pollo Tropical prototype restaurants in 2022, provided further that (a) no default shall have occurred and be continuing or would exist after giving effect to the construction or development of the new Pollo Tropical restaurant(s), (b) after giving effect to the construction or development of such new Pollo Tropical restaurant(s) on a pro forma basis Fiesta is in compliance with each of the Liquidity Covenant, the Adjusted Leverage Ratio, the Fixed Charge Coverage Ratio and the Capital Expenditures Covenant, (c) the aggregate revolving commitment is less than or equal to $95.0 million and (d) after giving effect to the construction or development of such new Pollo Tropical restaurant(s) on a pro forma basis, liquidity is greater than or equal to the sum of $5.0 million plus the amount of minimum liquidity required on such date pursuant to the Liquidity Covenant.

The amended senior credit facility also provides that we will be required to engage a financial advisor or chief restructuring officer if we are not in compliance with certain milestones, including, among other items, (i) using commercially reasonable efforts to refinance and pay in full the obligations under the amended senior credit facility, (ii) furnishing a written assessment and reasonable action plan for the disposition of owned real property with a targeted gross value of $30.0 million and complying with such action plan, (iii) furnishing a written plan for executing certain actions intended to improve service levels, reduce costs and increase efficiency, (iv) providing a proposed timeline for completion of a shelf registration with the Securities and Exchange Commission for the issuance of common equity interests of Fiesta, (v) maintaining $30.0 million of liquidity on October 1, 2020, (vi) on or before October 1, 2020, furnishing information demonstrating compliance with the Adjusted Leverage Ratio, the Fixed Charge Coverage Ratio, the Liquidity Covenant and the Capital Expenditures Covenant, (vii) no default shall have occurred and (viii) compliance at all times with the Adjusted Leverage Ratio, the Fixed Charge Coverage Ratio, the Liquidity Covenant and the Capital Expenditures Covenant.

All obligations under the amended senior credit facility are secured by all of our assets (including a pledge of all of the capital stock and equity interests of all our subsidiaries) pursuant to an amended and restated security agreement. Under the amended senior credit facility, the lenders may terminate their obligation to advance and may declare the unpaid balance of borrowings, or any part thereof, immediately due and payable upon the occurrence and during the continuance of customary defaults which include, without limitation, payment default, covenant defaults, bankruptcy type defaults, defaults on other indebtedness, certain judgments or upon the occurrence of a change of control (as specified in the amended senior credit facility).

Our amended senior credit facility contains customary default provisions, including without limitation, a cross default provision pursuant to which it is an event of default under this facility if there is a default under any of our indebtedness having an outstanding principal amount of $5.0 million or more which results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due.

Our amended senior credit facility matures on November 30, 2022.

Senior Credit Facility. Prior to July 10, 2020, our senior credit facility provided for aggregate revolving credit borrowings of up to $150.0 million (including up to $15.0 million available for letters of credit) ~~and matures on November 30, 2022. The~~. Prior to July 10, 2020, the senior credit facility also ~~provides~~provided for potential incremental increases of up to $50.0 million to the revolving credit borrowings available under the senior credit facility. On ~~September 29, 2019,~~June 28, 2020, there were ~~$69.0~~$146.5 million in outstanding revolving credit borrowings under our senior credit facility.

~~Borrowings~~Prior to July 10, 2020, borrowings under the senior credit facility ~~bear~~bore interest at a per annum rate, at our option, equal to either (all terms as defined in the senior credit facility):


1)	the Alternate Base Rate plus the applicable margin of 0.75% to 1.50% based on our Adjusted Leverage Ratio (with a margin of ~~1.00%~~1.50% as of ~~September 29, 2019)~~June 28, 2020), or


2)	the LIBOR Rate plus the applicable margin of 1.75% to 2.50% based on our Adjusted Leverage Ratio (with a margin of ~~2.00%~~2.50% as of ~~September 29, 2019)~~June 28, 2020).

In addition, prior to July 10, 2020, the senior credit facility ~~requires~~required us to pay (i) a commitment fee based on the applicable Commitment Fee rate of 0.25% to 0.35%, based on our Adjusted Leverage Ratio, (with a rate of ~~0.30%~~0.35% as of ~~September 29, 2019)~~June 28, 2020) and the unused portion

of the facility and (ii) a letter of credit fee based on the applicable LIBOR margin and the dollar amount of outstanding letters of credit.

All obligations under the senior credit facility ~~are~~were guaranteed by all of our material domestic subsidiaries. In general, prior to July 10, 2020, our obligations under our senior credit facility and our subsidiaries' obligations under the guarantees ~~are~~were secured by a first priority lien and security interest on substantially all of our assets and the assets of our material subsidiaries (including a pledge of all of the capital stock and equity interests of our material subsidiaries), other than certain specified assets, including real property owned by us or our subsidiaries.

The outstanding borrowings under the senior credit facility ~~are~~were prepayable subject to breakage costs as defined in the senior credit ~~facility. The~~facility agreement. Prior to July 10, 2020, the senior credit facility ~~requires~~required us to comply with customary affirmative, negative and financial covenants, including, without limitation, those limiting our and our ~~subsidiaries’~~subsidiaries' ability to (i) incur indebtedness, (ii) incur liens, (iii) loan, advance, or make acquisitions and other investments or other commitments to construct, acquire or develop new restaurants (subject to certain exceptions), (iv) pay dividends, (v) redeem and repurchase equity interests (subject to certain exceptions), (vi) conduct asset and restaurant sales and other dispositions (subject to certain exceptions), (vii) conduct transactions with affiliates and (viii) change our business. In addition, prior to July 10, 2020, the senior credit facility ~~requires~~required us to maintain certain financial ratios, including minimum Fixed Charge Coverage and maximum Adjusted Leverage Ratios (all as defined under the senior credit ~~facility)~~facility agreement).

Our senior credit facility contains customary default provisions, including without limitation, a cross default provision pursuant to which it is an event of default under this facility if there is a default under any of our indebtedness having an outstanding principal amount of $5.0 million or more which results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due.

~~As of September 29, 2019, we were in compliance with the covenants under our senior credit facility.~~ After reserving ~~$3.7~~$3.5 million for letters of credit issued under the senior credit facility, ~~$77.3 million~~no amount was available for borrowing ~~under the senior credit facility~~ at ~~September 29, 2019.~~

~~Share Repurchase Plan Modification~~

On November 5, 2019, we announced that our board of directors approved an increase to our share repurchase program of an additional 1.0 million shares of common stock from the previously announced 2.0 million shares of our common stock, consisting of 1.5 million shares approved on February 26, 2018 and 0.5 million shares approved on August 7, 2019. As of November 5, 2019, we had purchased a total of 1,176,895 shares of common stock and, following this increase, 1,823,105 shares of common stock remain available for purchase under our share repurchase program.June 28, 2020.

Off-Balance Sheet Arrangements and Contractual Obligations

We have no off-balance sheet arrangements. Prior to the adoption of ASC 842, off-balance sheet arrangements consisted of our operating leases, which are primarily for our restaurant properties, and are now included in other current liabilities and operating lease liabilities on the condensed consolidated balance sheet as of September 29, 2019.

There have been no significant changes outside the ordinary course of business to our contractual obligations since December ~~30, 2018.~~29, 2019. Information regarding our contractual obligations is included under "Contractual Obligations" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2018.~~29, 2019.

Inflation

The inflationary factors that have historically affected our results of operations include increases in food and paper costs, labor and other operating expenses and energy costs. Labor costs in our restaurants are impacted by changes in the federal and state hourly minimum wage rates as well as changes in payroll related taxes, including federal and state unemployment taxes. We typically attempt to offset the effect of inflation, at least in part, through periodic menu price increases and various cost reduction programs. However, no assurance can be given that we will be able to fully offset such inflationary cost increases in the future.

Application of Critical Accounting Policies

Our unaudited interim condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in the "Basis of Presentation" footnote in the notes to our consolidated financial statements for the year ended December ~~30, 2018~~29, 2019 included in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2018.~~29, 2019. Critical accounting estimates are those

that require application of management's most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. There have been no material changes affecting our critical accounting policies for the ~~nine~~six months ended ~~September 29, 2019 other than the lease accounting and evaluation of goodwill policies included below.~~

~~Lease Accounting.~~ As discussed in Note 6 to our unaudited condensed consolidated financial statements, we adopted ASU 2016-02: Leases (ASC 842), the new lease accounting standard, as of as of December 31, 2018 using the modified retrospective method, with certain optional practical expedients including the transition practical expedient package, which among other things does not require reassessment of lease classification. Judgments made by management for our lease obligations include the determination of our incremental borrowing rate, the determination of stand alone selling prices used to allocate the consideration in the contract, and the length of the lease term, which includes the determination of renewal options that are reasonably assured. The lease term can affect the classification of a lease as finance or operating for accounting purposes, the amount of the lease liability and corresponding right-of-use lease asset recognized, the term over which related leasehold improvements for each restaurant are amortized and any rent holidays and/or changes in rental amounts for recognizing rent expense over the term of the lease. These judgments may produce materially different amounts of depreciation, amortization and rent expense than would be reported if different assumed lease terms were used.

We use our estimated incremental borrowing rate in determining the present value of lease payments for purposes of determining lease classification and recording lease liabilities and lease assets on our consolidated balance sheet. Our incremental borrowing rate is determined based on a synthetic credit rating, determined using a valuation model, adjusted to reflect a secured credit rating and a developed spread curve applied to a risk-free rate yield curve. Changes in the determination of our incremental borrowing rate could also have an impact on the depreciation and interest expense recognized for finance leases.

~~Evaluation of Goodwill.~~ We must evaluate our recorded goodwill for impairment annually or more frequently when events and circumstances indicate that the carrying amount may be impaired. We have elected to conduct our annual impairment review of goodwill assets as of the last day of our fiscal year. As of June 30, 2019, we determined that a triggering event had occurred due to a sustained decrease in the market price of our common stock and performed an interim impairment test. In addition, in response to a further decrease in the market price of our common stock and lower than expected profitability in the third quarter of 2019, we performed an impairment test as of September 29, 2019. As discussed in Note 1 to our unaudited condensed consolidated financial statements, we adopted ASU No. 2017-04, ~~Simplifying the Test for Goodwill Impairment~~ in the second quarter of 2019, which eliminates the requirement to calculate the implied fair value of goodwill if the fair value of a reporting unit is less than the carrying amount of the reporting unit. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. We early adopted this new accounting standard and performed our interim impairment test in accordance with ASU 2017-04. Our interim impairment tests at June 30, 2019 and September 29, 2019 indicated there was impairment as of those dates.

In reviewing goodwill for impairment, we compare the net book values of our reporting units to their estimated fair values. In determining the estimated fair values of the reporting units, we employ a combination of a discounted cash flow analysis based on management's best estimates of future cash flows and one or two market-based approaches. The results of these analyses are corroborated with other value indicators where available, such as comparable company earnings multiples. This evaluation of goodwill requires us to make estimates and assumptions to determine the fair value of our reporting units including projections regarding future operating results, anticipated growth rates, the weighted average cost of capital used to discount projected cash flows, and market multiples. For our Pollo Tropical reporting unit, the fair value exceeded the carrying value of the reporting unit by a substantial amount. For our Taco Cabana reporting unit, a lower profitability and growth outlook reduced the income-based and market-based approach fair value. As a result, the carrying value exceeded the fair value of the reporting unit, and we recognized impairment charges to write down the carrying value of our Taco Cabana reporting unit goodwill of $46.5 million in the second quarter of 2019 and $21.4 million in the third quarter of 2019. As of September 29, 2019, our Taco Cabana reporting unit goodwill has no remaining carrying value. See Note 4 to our unaudited condensed consolidated financial statements.

The estimates and assumptions used to determine fair value may differ from actual future events and if these estimates or related projections change in the future, we may be required to record material impairment charges for goodwill assets.

28, 2020.

Management's Use of Non-GAAP Financial Measures

Consolidated Adjusted EBITDA is a non-GAAP financial measure. We use Consolidated Adjusted EBITDA in addition to net income and income from operations to assess our performance, and we believe it is important for investors to be able to evaluate us using the same measures used by management. We believe this measure is an important indicator of our operational strength and the performance of our business. Consolidated Adjusted EBITDA as calculated by us is not necessarily comparable to similarly titled measures reported by other companies, and should not be considered as an alternative to net income, earnings per share, cash flows from operating activities or other financial information determined under GAAP.

The primary measure of segment profit or loss used by the chief operating decision maker to assess performance and allocate resources is Adjusted EBITDA, which is defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, goodwill impairment, closed restaurant rent expense, net of sublease income, stock-based compensation expense, other expense (income), net, and certain significant items for each segment that management believes are related to strategic changes and/or are not related to the ongoing operation of our restaurants as set forth in the reconciliation table below. Adjusted EBITDA for each of our segments includes an allocation of general and administrative expenses associated with administrative support for executive management, information systems and certain finance, legal, supply chain, human resources, construction and other administrative functions. See Note 86 to our unaudited condensed consolidated financial statements.

We also use Restaurant-level Adjusted EBITDA as a supplemental measure to evaluate the performance and profitability of our restaurants in the aggregate, which is defined as Adjusted EBITDA for the applicable segment excluding franchise royalty revenues and fees, pre-opening costs, and general and administrative expenses (including corporate-level general and administrative expenses). Restaurant-level Adjusted EBITDA is also a non-GAAP financial measure.

Management believes that Consolidated Adjusted EBITDA and Restaurant-level Adjusted EBITDA, when viewed with our results of operations calculated in accordance with GAAP and our reconciliation of net income (loss) to Consolidated Adjusted EBITDA and Restaurant-level Adjusted EBITDA (i) provide useful information about our operating performance and period-over-period changes, (ii) provide additional information that is useful for evaluating the operating performance of our business and (iii) permit investors to gain an understanding of the factors and trends affecting our ongoing earnings, from which capital investments are made and debt is serviced. However, such measures are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as alternatives to net income or cash flow from operating activities as indicators of operating performance or liquidity. Also these measures may not be comparable to similarly titled captions of other companies.

All such financial measures have important limitations as analytical tools. These limitations include the following:

such financial information does not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments to purchase capital equipment;

such financial information does not reflect interest expense or the cash requirements necessary to service payments on our debt;

although depreciation and amortization are non-cash charges, the assets that we currently depreciate and amortize will likely have to be replaced in the future, and such financial information does not reflect the cash required to fund such replacements; and

such financial information does not reflect the effect of earnings or charges resulting from matters that our management does not consider to be indicative of our ongoing operations. However, some of these charges and gains (such as impairment and other lease charges, closed restaurant rent expense, net of sublease income, other income and expense and stock-based compensation expense) have recurred and may recur.

A reconciliation from consolidated net income to Consolidated Adjusted EBITDA follows (in thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018			June 28, 2020			June 30, 2019			June 28, 2020			June 30, 2019

Net income (loss)	$	(22,182	)	$	2,047		$	(63,333	)	$	15,724
Benefit from income taxes	(2,946		)	(4,892		)	(1,377		)	(246		)
Income (loss) before taxes	(25,128		)	(2,845		)	(64,710		)	15,478
Net loss													$	(8,343	)	$	(43,440	)	$	(15,660	)	$	(41,151	)
Provision for (benefit from) income taxes													(1,743		)	623			(4,748		)	1,569
Loss before income taxes													(10,086		)	(42,817		)	(20,408		)	(39,582		)
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization	10,165			9,739			29,520			27,908			9,565			9,807			18,995			19,355
Impairment and other lease charges	3,254			6,417			4,667			6,539			2,285			1,751			6,518			1,413
Goodwill impairment	21,424			—			67,909			—			—			46,485			—			46,485
Interest expense	823			924			3,024			2,979			1,237			967			2,198			2,201
Closed restaurant rent expense, net of sublease income	726			—			3,485			—			1,830			1,335			3,462			2,759
Other expense (income), net	64			47			920			(3,132		)	784			154			1,692			856
Stock-based compensation expense in restaurant wages	102			6			145			56			69			16			105			43
Total non-general and administrative expense adjustments	36,558			17,133			109,670			34,350			15,770			60,515			32,970			73,112
General and administrative expense adjustments:
Stock-based compensation expense	509			732			1,993			2,588			959			719			1,735			1,484
Board and shareholder matter costs⁽¹⁾	—			—			—			(597		)
Restructuring costs and retention bonuses⁽²⁾	—			17			964			520
Legal settlements and related costs⁽³⁾	—			—			—			(167		)
Digital and brand repositioning costs⁽⁴⁾	215			—			215			—
Restructuring costs and retention bonuses⁽¹⁾													891			349			891			964
Digital and brand repositioning costs⁽²⁾													131			—			350			—
Total general and administrative expense adjustments	724			749			3,172			2,344			1,981			1,068			2,976			2,448
Consolidated Adjusted EBITDA	$	12,154		$	15,037		$	48,132		$	52,172		$	7,665		$	18,766		$	15,538		$	35,978

⁽¹⁾~~Board and shareholder matter costs for the nine months ended September 30, 2018 included fee reductions and final insurance recoveries related to 2017 shareholder activism costs.~~

⁽²⁾Restructuring costs and retention bonuses for the three and nine months ended September 29, 2019 include severance related to eliminated positions. Restructuring costs and retention bonuses for the three and nine months ended September 30, 2018 include severance related to the Strategic Renewal Plan and reduction in force and bonuses paid to certain employees for retention purposes.

⁽³⁾~~Legal settlements and related costs for the nine months ended September 30, 2018 included reductions to final settlement amounts and benefits related to litigation matters.~~

⁽⁴⁾ ~~Digital and brand repositioning costs for the three and nine months ended September 29, 2019 include consulting costs related to repositioning the digital experience for our customers.~~

Restructuring costs and retention bonuses for the three and six months ended June 28, 2020, include severance costs related to terminations in response to the COVID-19 pandemic. Restructuring costs and retention bonuses for the three and six months ended June 30, 2019, primarily include severance costs related to eliminated positions.


⁽²⁾	Digital and brand repositioning costs for the three and six months ended June 28, 2020 include consulting costs related to repositioning the digital experience for our customers.

A reconciliation from Adjusted EBITDA to Restaurant-level Adjusted EBITDA follows (in thousands):


Three Months Ended	Pollo Tropical		Taco Cabana		Pollo Tropical		Taco Cabana
September 29, 2019:
June 28, 2020:
Adjusted EBITDA	$	10,980	$	1,174	$	4,993	$	2,672
Restaurant-level adjustments:
Add: Pre-opening costs	68		9		—		—
Add: Other general and administrative expense⁽¹⁾	7,135		5,961		5,491		4,816
Less: Franchise royalty revenue and fees	432		227		146		175
Restaurant-level Adjusted EBITDA	$	17,751	$	6,917	$	10,338	$	7,313

September 30, 2018:
June 30, 2019:
Adjusted EBITDA	$	12,544	$	2,493	$	14,646	$	4,120
Restaurant-level adjustments:
Add: Pre-opening costs	134		89		153		232
Add: Other general and administrative expense⁽¹⁾	6,878		5,657		7,071		5,357
Less: Franchise royalty revenue and fees	453		229		438		230
Restaurant-level Adjusted EBITDA	$	19,103	$	8,010	$	21,432	$	9,479

Nine Months Ended	Pollo Tropical		Taco Cabana
September 29, 2019:
Six Months Ended					Pollo Tropical		Taco Cabana
June 28, 2020:
Adjusted EBITDA	$	39,943	$	8,189	$	13,773	$	1,765
Restaurant-level adjustments:
Add: Pre-opening costs	307		556		—		69
Add: Other general and administrative expense⁽¹⁾	21,427		17,788		12,549		11,147
Less: Franchise royalty revenue and fees	1,325		673		550		384
Restaurant-level Adjusted EBITDA	$	60,352	$	25,860	$	25,772	$	12,597

September 30, 2018:
June 30, 2019:
Adjusted EBITDA	$	42,520	$	9,652	$	28,963	$	7,015
Restaurant-level adjustments:
Add: Pre-opening costs	699		782		239		547
Add: Other general and administrative expense⁽¹⁾	21,105		17,573		14,292		11,827
Less: Franchise royalty revenue and fees	1,376		632		893		446
Restaurant-level Adjusted EBITDA	$	62,948	$	27,375	$	42,601	$	18,943

⁽¹⁾ Excludes general and administrative adjustments included in Adjusted EBITDA.

Forward Looking Statements

Matters discussed in this report and in our public disclosures, whether written or oral, relating to future events or our future performance, including any discussion, ~~expressed~~express or implied, regarding ~~our intention to repurchase shares from time to time under the share repurchase program and the source of funding of such repurchases,~~ our anticipated growth, operating results, future earnings per share, plans, objectives, the impact of our other business initiatives, the impact of our initiatives designed to strengthen our liquidity and cash position, including those related to working capital efficiency initiatives and sales of real property and the impact of the recent COVID-19 outbreak and our ~~investments in our Strategic Renewal Plan (the "Plan") and other business~~ initiatives designed to respond to the COVID-19 outbreak on future sales, margins, earnings and ~~earnings,~~liquidity, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). These statements are often identified by the words "believe," "positioned," "estimate," "project," "plan," "goal," "target," "assumption," "continue," "intend," "expect," "future," "anticipate," and other similar expressions, whether in the negative or the affirmative, that are not statements of historical fact. These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict, and you should not place undue reliance on our forward-looking statements. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this report and in our other public filings with the United States Securities and Exchange Commission ("SEC"). All forward-looking statements and the internal projections and beliefs upon which we base our expectations included in this report or other periodic reports represent our estimates as of the date made and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we expressly disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk

We purchase certain products which are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions and other factors which are not considered predictable or within our control. Although many of the products purchased are subject to changes in commodity prices, certain purchasing contracts or pricing arrangements have been negotiated in advance to minimize price volatility. Where possible, we use these types of purchasing techniques to control costs as an alternative to using financial instruments to hedge commodity prices. In many cases, we believe we will be able to address commodity cost increases that are significant and appear to be long-term in nature by adjusting our menu pricing. However, long-term increases in commodity prices may result in lower restaurant-level operating margins.

There were no material changes from the information presented in Item 7A included in our Annual Report on Form 10-K for the year ended December ~~30, 2018~~29, 2019 with respect to our market risk sensitive instruments.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. Our senior management is responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures. We have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, with the participation of our Chief Executive Officer and Chief Financial Officer, as well as other key members of our management. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~September 29, 2019.~~June 28, 2020.

Changes in Internal Control over Financial Reporting. No change occurred in our internal control over financial reporting during the ~~third~~second quarter of ~~2019~~2020 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are a party to various litigation matters incidental to the conduct of business. We do not believe that the outcome of any of these matters will have a material adverse effect on our business, results of operations or financial condition.

Item 1A. Risk Factors

Part 1—Item 1A of our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2018~~29, 2019, describes important factors that could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-Q or presented elsewhere by management from time-to-time. ~~There~~The Company's risk factor disclosure has been updated to add the following:

Pandemics or disease outbreaks, such as the current novel coronavirus (COVID-19 virus) pandemic may disrupt our business, which could materially affect our operations and results of operations.

Pandemics or disease outbreaks such as the current novel coronavirus (COVID-19 virus) pandemic, have ~~been no material~~and may continue to impact customer traffic at our restaurants, may make it more difficult to staff our restaurants and, in more severe cases, may cause a temporary inability to obtain supplies, increase commodity costs or cause full and partial closures of our affected restaurants, sometimes for prolonged periods of time. We have temporarily shifted to a "to-go" only operating model at all of our Pollo Tropical and Taco Cabana restaurants in Florida and Texas, suspending sit-down dining and serving our guests through take-out, drive-thru and delivery. We have also implemented closures, modified hours or reductions in on-site staff, resulting in canceled shifts

for some of our employees. COVID-19 may also materially adversely affect our ability to implement our growth plans, including delays in construction of new restaurants. These changes ~~from~~and any additional changes may materially adversely affect our business or results of operations, and may impact our liquidity or financial condition, particularly if these changes are in place for a significant amount of time. In addition, our operations could be disrupted if any of our employees or employees of our business partners were or are suspected of having COVID-19 or other illnesses since this could require us or our business partners to quarantine some or all such employees or close and disinfect our restaurant facilities. If a significant percentage of our workforce or the workforce of our business partners are unable to work, including because of illness or travel or government restrictions in connection with pandemics or disease outbreaks (including the current COVID-19 pandemic), our operations may be negatively impacted, potentially materially adversely affecting our business, liquidity, financial condition or results of operations. Furthermore, such viruses may be transmitted through human contact, and the risk ~~factors previously disclosed~~of contracting viruses could cause employees or guests to avoid gathering in public places, which has had, and could further have, adverse effects on our ~~Annual Report~~restaurant guest traffic or the ability to adequately staff restaurants, in addition to the measures we have already taken with respect to moving to "to-go" only operations. We could also be adversely affected if government authorities continue to impose restrictions on ~~Form 10-K for~~public gatherings, human interactions, operations of restaurants or mandatory closures, seek voluntary closures, restrict hours of operations or impose curfews, restrict the ~~fiscal year ended December 30, 2018.~~import or export of products or if suppliers issue mass recalls of products. Currently, several states and municipalities in the U.S. and abroad have temporarily suspended the operation of dining in at restaurants in light of COVID-19, including in Dade and Broward Counties, Florida and various municipalities in Texas, and we expect that more may do so. Additional regulation or requirements with respect to the compensation of our employees could also have an adverse effect on our business. Even if such measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of infection or health risk may adversely affect our business, liquidity, financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~On February 26,~~During the years ended December 30, 2018, ~~we announced that~~and December 29, 2019, our board of directors ~~approved a share~~authorized the repurchase ~~program for up to 1.5~~of an aggregate 3.0 million shares of our common ~~stock. On~~stock through the following actions:

•1.5 million shares of common stock were authorized for repurchase on February 26, 2018;

•an additional 0.5 million shares of common stock were authorized for repurchase on August 7, ~~2019, we announced that our board of directors approved an increase to the share repurchase program of~~ 2019; and

•an additional ~~500,000~~1.0 million shares of ~~our~~ common ~~stock. Under the share~~stock were authorized for repurchase program, shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b-18 under the Exchange Act. The number of shares repurchased and the timing of repurchases will depend on ~~a number of factors, including, but not limited to, stock price, trading~~November 5, 2019.

~~volume, general market and economic conditions, and other corporate considerations.~~ The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by our board of directors.

~~The following table sets forth information with respect~~ As of June 28, 2020, there was a remaining balance of approximately 1.0 million shares authorized for repurchase that had not been utilized. Our amended senior credit facility prohibits share repurchases and we currently do not intend to ~~repurchases~~repurchase additional shares of our common stock for the foreseeable future. We did not repurchase any shares during the ~~quarter~~three months ended ~~September 29, 2019:~~

Period
Total Number of
Shares Purchased⁽¹⁾
Average Price
Paid
per Share Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs Maximum Number of Shares that
May Yet Be Purchased
Under the Plans or
Programs
July 1, 2019 to July 28, 2019 —
$ —
—
1,729,373
July 29, 2019 to September 1, 2019 500,000
9.90
500,000
1,229,373
September 2, 2019 to September 29, 2019 406,268
10.31
406,268
823,105
Total 906,268
$ 10.08
906,268

⁽¹⁾ ~~Shares purchased in open market transactions.~~June 28, 2020.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

(a) The following exhibits are filed as part of this report.




Exhibit No.

~~10.1~~		~~Offer letter dated as of September 9, 2019 between Fiesta Restaurant Group, Inc. and Dirk Montgomery. +~~

~~10.2~~		~~Agreement dated as of September 9, 2019 by and between Fiesta Restaurant Group, Inc. and Dirk Montgomery. +~~

31.1		Chief Executive Officer's Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

31.2		Chief Financial Officer's Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

32.1		Chief Executive Officer's Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

32.2		Chief Financial Officer's Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

101.INS		XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

+ Compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	FIESTA RESTAURANT GROUP, INC.

Date: ~~November~~August 5, ~~2019~~2020	/S/s/ RICHARD C. STOCKINGER
	(Signature)
	Richard C. Stockinger Chief Executive Officer

Date: ~~November~~August 5, ~~2019~~2020	/S/s/ DIRK MONTGOMERY
	(Signature)
	Dirk Montgomery Senior Vice President, Chief Financial Officer and Treasurer

Date: ~~November~~August 5, ~~2019~~2020	/S/s/ CHERI KINDER
	(Signature)
	Cheri Kinder Vice President, Corporate Controller and Chief Accounting Officer

4744



	September 29, 2019
Operating Leases
Operating lease right-of-use assets	$	254,449

Other current liabilities	$	19,647
Operating lease liabilities	258,891
Total operating lease liabilities	$	278,538

Finance Leases
Property and equipment, gross	$	2,874
Accumulated amortization	(1,268		)
Property and equipment, net	$	1,606

Current portion of long-term debt	$	204
Long-term debt, net of current portion	1,887
Total finance lease liabilities	$	2,091



	Nine Months Ended
	September 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	32,833
Operating cash flows for finance leases	168
Financing cash flows for finance leases	109

Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets	8,618
Finance lease ROU assets	495

Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets	4,058
Operating lease liabilities	4,787

Operating lease right-of-use assets obtained and liabilities incurred as a result of adoption of ASC 842:
Operating lease ROU assets	267,743
Operating lease liabilities	291,373



	Operating Leases			Finance Leases
Remaining 2019	$	7,369		$	87
2020	43,570			460
2021	40,062			475
2022	38,637			475
2023	35,269			428
2024	31,820			350
Thereafter	248,237			1,278
Total lease payments	444,964			3,553
Less amount representing interest	(166,426		)	(1,462		)
Total discounted lease liabilities	278,538			2,091
Less current portion	(19,647		)	(204		)
Long-term portion of leases liabilities	$	258,891		$	1,887



	Operating		Capital
2019	$	44,427	$	323
2020	44,144		327
2021	41,396		342
2022	40,215		342
2023	36,587		349
Thereafter	264,704		1,646
Total minimum lease payments⁽¹⁾	$	471,473	3,329
Less amount representing interest			(1,585		)
Total obligations under capital leases			1,744
Less current portion			(108		)
Long-term debt under capital leases			$	1,636



Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2019 to July 28, 2019	—	$	—	—	1,729,373
July 29, 2019 to September 1, 2019	500,000	9.90		500,000	1,229,373
September 2, 2019 to September 29, 2019	406,268	10.31		406,268	823,105
Total	906,268	$	10.08	906,268